Better times ahead for mortgage borrowers

With interest rates now expected to come down, the cost of home loans has already started to fall.

Mortgage borrowers have good reason to begin 2024 feeling cheerful. After a tough period for the home loan market, with a seemingly endless run of interest rate rises that significantly increased the cost of borrowing, better times are now in sight. This year should see headline interest rates start to fall again – and mortgage deals are already being repriced in anticipation of such reductions.

The change in mood in the mortgage market reflects the shifting economic landscape. In particular, the Bank of England spent much of 2022 and 2023 battling to get inflation under control, with average annual price rises peaking at 11.1%, way above the 2% rate the Bank is mandated to target. By last November, the figure was down to 4% and the consensus forecast among economists is for inflation to keep falling during 2024, albeit gradually.

The Bank’s main tool for managing inflation is its interest rate policy. Between December 2021 and August 2023, it raised its base rate from just 0.1% to 5.25% to try to get on top of inflation. With much of that work done, economists now expect a change of tack. They are expecting rates to start falling again – possibly from as early as May, and with as many as four reductions this year.

Cheaper mortgages
The cost of mortgages has already begun to fall accordingly. Six months ago, almost everyone looking to fix their mortgage rate for the following five years would have had to sign up to a deal costing more than 5% a year. Today, the vast majority of these loans are priced below 5% – and there are even a number of deals available at below 4%.

It’s not just that the economic climate has changed. Competition between mortgage lenders has also become increasingly fierce. A mini price war between lenders broke out at the tail end of last year and is continuing. Very few mortgage providers hit their targets for new lending last year, so they are feeling the pressure to price more aggressively to secure market share.

All of which is good news for mortgage borrowers. For those looking for a mortgage for the first time, affordability is improving, which should make it easier to get on to the housing ladder. Indeed, interest rate reductions are expected to boost the first-time buyer market, as well as helping home movers, which should mean house prices prove more robust this year than had previously been expected.

As for those with existing mortgage deals, it may now be possible to remortgage on to more attractive home loans. In particular, the 1.6 million Britons on fixed-rate deals that are due to expire during 2024 should now be able to breathe a little easier. While many of these borrowers will still see their monthly repayments rise – since their current deals were arranged at ultra-low rates – their extra costs may not be as substantial as seemed likely only a few months ago.

Hedge your bets
One important point here is that it is possible to secure a new mortgage deal at any time up to six months before your current deal comes to an end, but without committing yourself to going ahead with it. In other words, you can sign up to the best possible deal available today, but then switch to a better deal if mortgage rates continue to improve before your current deal comes to an end.

There is good reason to be optimistic in this regard. Certainly, the financial markets are expecting rates to continue falling. Five-year fixed-rate mortgages are still cheaper than two-year deals, reflecting a consensus view that interest rates will come back down over the medium to longer term.

Nevertheless, mortgage borrowers need to tread carefully. The rates available will vary according to your personal circumstances – including how much you need to borrow and the value of your property. It’s also the case that the best deals may not be available from high-street lenders, so shopping around for a competitive product will be important.

A professional mortgage adviser will help you do exactly that. Chase de Vere can help you identify the best deals available today, so that you pick the right mortgage for you. Where relevant, we can also revisit that advice during the period running up to your current deal’s expiry date, identifying any opportunities to move to an even more attractive option.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Content correct at time of writing.

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