How should borrowers navigate the mortgage market when the outlook for interest rates is so uncertain? We speak to our Managing Partner Simon Gammon to find out.
October marked the mortgage market’s most volatile period in recent memory. A spike in mortgages rates following the mini budget gave way to fortnight of relative stability. Some lenders even cut the price of fixed rate mortgages.
Then on November 3rd the Bank of England opted to raise the base rate by 0.75%, its largest rise since 1992. At 3%, the base rate is now at its highest level since 2008.
Where does that leave people? How should borrowers engage with the market when the base rate is rising steeply as mortgage rates are easing? To find out, we spoke our managing partner Simon Gammon:
Hi Simon, you’ll have seen the BoE raised the base rate to 3%, what is that likely to mean for mortgage rates?
We think fixed rate products are likely to remain stable, or perhaps even fall further. Many fixed rate products sit somewhere between 5.5% and 6%. Swap rates – instruments used by lenders to price mortgages – have been easing. If they continue to do so, we believe that many borrowers could still enjoy fixed rate products starting with a four.
Tracker products have surged in popularity in recent weeks. How is that likely to develop if the prices of fixed rate products are falling?
Should conditions continue as they are, we’d expect the appeal of tracker products to erode steadily. Before today’s decision tracker rates sat at about 3.5%, which is appealing relative to fixed rates. Today’s hike should see those move to about 4.25% . It’s entirely possible that the two come closer together during the months ahead – we may even see moments at which tracker products are more expensive than some fixed products.
Where does that leave borrowers that are wondering what to do next?
Every borrower’s situation will differ, so we recommend taking professional advice. The lenders continue to overhaul their product ranges rapidly and only mortgage brokers that cover the entire market can offer a complete perspective on how conditions are developing.
Having said that, there are some clear, sensible strategies. For borrowers at the end of their product term, or those already on their lender’s Standard Variable Rate, it makes sense to move to a penalty free tracker. That would enable those borrowers to benefit from the current differential in tracker and fixed rate products while they wait for fixed deals to ease further. Moving to a fixed product might trigger a second arrangement fee, but in many cases that will be eclipsed by the savings.
For those that don’t need to decide immediately, locking in a deal before watching and waiting remains a good strategy. Most deals can be renegotiated should the price of fixed rate products continue to fall.
Whatever your situation, please don’t hesitate to give me or one of the team a call. We’d be happy to walk you through your options.
If you are looking to purchase a property or remortgage this year and would like to discuss your options, please get in touch. We have access to over 200 lenders, and can help find the most suitable and cost-effective mortgage for you.