Light at the end of the tunnel?

After a tough period for mortgage borrowers, the deals on offer are now improving and there is the prospect of even cheaper interest rates to come

Some of the gloom in the mortgage market finally appears to be lifting. A sustained run of increasing borrowing costs has at last run out of steam, to the relief of both existing mortgage borrowers and new buyers, while affordability is improving too. For now, at least, there is light at the end of the tunnel.

The easing in the mortgage market reflects the broader economic picture. With inflation now falling back, the Bank of England no longer feels compelled to keep raising interest rates. After 14 consecutive months of rate hikes, the Bank’s Monetary Policy Committee chose to leave rates on hold in both of its last two meetings.

That has left the Bank’s base rate at 5.25%. While that looks high by recent standards, the consensus amongst economists is that the MPC could begin reducing rates again next year, possibly during next summer, as it looks to support economic growth. There are no guarantees – such decisions will depend on how inflation and the broader economy perform in the coming months – but the outlook now feels more positive in this regard than it has for some time.

Mortgage costs fall

The UK’s money markets are shifting accordingly, with the cost of borrowing over different time periods falling back in line with expectations of lower rates to come in the years ahead. And this has a direct impact on the mortgage market, with lenders pricing their deals according to money market rates.

The result is that mortgage borrowers who are currently looking to fix their mortgage rate for the next five years will find plenty of deals priced at below 5%. The same is true for borrowers thinking about taking on a two-year fixed rate. That’s a marked change compared to earlier in the year, when the vast majority of such deals were priced above the 5% mark.

Clearly, this is good news for anyone needing to arrange a new mortgage in the coming months – either because your current mortgage deal is coming to an end, or because you’re looking to buy for the first time.

For those in the former category, it is still likely that your mortgage costs will go up when you move on to your new deal, since most current deals were arranged at a time when interest rates were considerably lower. Nevertheless, the increase may be less than was expected even a few months ago – and there is still the potential for further improvements.

As for first-time buyers, less expensive mortgages will naturally be helpful as they take their first step on the property ladder. The fact that house prices also appear to be falling will also encourage first-time buyers. Nationwide Building Society says house prices are currently 3.3% lower, on average, compared to a year ago. Many economists expect further falls over the coming months, with estate agents reporting lower demand.

Rents, meanwhile, are still rising, with the average tenant having seen their costs increase by around 10% over the past 12 months. That gives renters every reason to explore buying, with lower house prices and cheaper interest rates potentially meaning they will need to save smaller deposits and find less money for mortgage repayments each month.

Start the mortgage search early

Whatever your position, it is worth starting the mortgage search sooner rather than later. In particular, the 1.6 million borrowers whose mortgage deals are due to expire during 2024 should be considering their options now, so they can start to plan their household finances for the year ahead.

The good news is that you can 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. That puts you in a strong position: you can secure the best possible deal available today, but then switch to a better deal if mortgage rates continue to improve before your current deal expires.

A professional mortgage adviser will help you navigate this market so that you get the best possible result. Chase de Vere can advise you on what’s available today, so that you pick the right deal for you. But we can then 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.

The information contained within this newsletter is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

Content correct at time of writing.

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