The Bank of England opted to hold the base rate at 5.25% on November 2nd, the second consecutive pause. Simon Gammon explains how the decision will impact mortgage rates, and outlines what borrowers should consider, whether they are seeking to purchase or refinance.
Sometimes doing nothing says a lot.
By opting to hold the base rate at 5.25% for the second consecutive meeting, the Bank of England signalled that interest rates are likely now at a sufficient level to bring the annual rate of inflation back to the 2% target.
That’s not to say the Bank won’t vote to hike again: the labour market remains tight, services prices are rising too quickly for comfort, and it’s possible the conflict in the Middle East adds to inflationary pressures. However, none of the key indicators have worsened in several weeks and previous interest hikes are still feeding through to the economy, giving the Bank plenty of leeway to step back and wait.
The outlook for mortgage rates
Mortgage rates have now been easing since late July. While they are now higher than most borrowers are used to, they are significantly more attractive than they were this time last year, when five-year fixed rates hit 6.5% during the weeks following the mini budget.
The mortgage rate available to you will depend on a range of factors, but typical five-year fixed rates now sit around 4.8%. That may ease to around 4.5% by the year end if the annual rate of inflation dips to 4% - 5%. The Consumer Prices Index rose 6.7% during the year to September, which is the latest data available.
Most borrowers are currently opting for tracker products, taking the view that, even if the Bank does opt to raise the base rate again, they would like to benefit from cuts to the base rate next year. Economists expect that to happen by late spring at the very earliest, but it could stretch to the end of 2024 or even early 2025.
Typical tracker products sit around 0.20% - 0.25% over the base rate, so are currently priced at 5.40% - 5.45%. Typical two-year products are priced marginally cheaper and have been ticking down in recent days. Which is right for you will depend on the health of your finances and your appetite for risk.
Market share
Many of the high street lenders published financial results last month and it's clear that many are all behind on their lending targets.
Lending margins are already thin by historic standards, so we're seeing banks tweak their criteria or product ranges to build market share, whether that's by assessing income more generously or by introducing more higher loan-to-value products. The number of mortgages available to landlords, for example, rose by more than 100 during October, bringing total product availability to 2,500, according to Moneyfacts.
Anybody purchasing a new home or looking to refinance will almost inevitably face higher monthly costs, but conditions are changing rapidly – mostly for the better. By engaging with a mortgage broker as early as possible, you can maximise your chances of choosing the best deal, at best rate available.
To better understand your options, get in touch with our expert brokers for a no-obligation consultation.