News Analysis: The rise and fall of mortgage rates


Could stability be returning to a previously unsettled mortgage market? In late January, Octane Capital revealed that average monthly mortgage repayments had fallen by 14% since the announcement of the September mini-Budget.

Prior to former chancellor Kwasi Kwarteng’s fiscal statement last year, a typical two-year fixed-rate mortgage, at 75% loan-to-value (LTV) with a 25% deposit and an interest rate of 3.6%, resulted in an average monthly mortgage repayment of £1,113. However, the tax-cutting mini-Budget accelerated already rising mortgage rates.

Action taken by current chancellor Jeremy Hunt in October and in the November Autumn Statement calmed markets, although home loans remained elevated.

Most experts agree that inflation has peaked and will only go down, so there really is no reason for lenders to increase mortgage rates

By October, the impact of the mini-Budget had increased the average rate to 6%. However, at the end of last year stability seemed to be returning to markets with lenders making large and sometimes multiple rate cuts.

Moneyfacts revealed that, between 6 and 13 January,  the average rate for a two-year fix had fallen 12 basis points to 5.63%, while the average rate for a three-year fix had dipped 6bps to 5.71%.

Meanwhile, the average rate for a five-year fix fell 13bps, ending the week at 5.45%, and an 18bps drop saw the average rate for a 10-year fix hit 5.64%.

Lodestone Mortgages & Protection founder and director Craig Fish says: “Mortgage rates have started to fall because swap rates have fallen.”

The increase in remortgages has kept most brokers busy so far

Fish suggests this is due to the stability being provided by the new prime minister and chancellor, having reversed the majority of the “kamikaze tax cuts” imposed under the leadership of Liz Truss and Kwarteng.

Harmony Financial Services director Imran Hussain describes the start of 2023 as “epic”, with lenders entering a “rate war” to attract the best borrowers.

And that is set to continue, with Generation Home commercial director Pete Dockar suggesting the market will “undoubtedly see a rates war as lenders try to leapfrog one another”.

Dockar says: “The interesting additional dynamic is that, with a moderately gloomy economic outlook, many lenders’ boards will be looking to see a more cautious approach from a credit risk appetite.

“This risks a challenging situation of fierce competition among lenders for low-risk customers but the prospect that those who need the most support in terms of affordability will be squeezed out with fewer borrowing options.”

I don’t agree that 2023 will be all doom and gloom as we were led to believe it would be

The Bank of England (BoE) base rate also continued to increase during 2022.

Clayhall Financial Services director David Conway explains: “Lenders moved to cover a sudden and unexpected risk, creating a race to the top — which dominated media coverage — and a fear level of pandemic proportions.”

Advantage Financial Solutions advising director Steven Morris says the general public worries that a BoE rate increase means mortgage fixed rates go up. However, mortgage fixed rates are priced around swap rates — the rate at which lenders agree to borrow money at a fixed price.

Morris explains the current Bank rate is 1.75% higher than it was last September and current fixed rates are around 1% lower.

He comments: “After the mini-Budget, BoE, swap and mortgage fixed rates all went up, all in the face of an economic policy gaffe.

Lenders are realising that they over-reacted

“Recent months demonstrated it’s perfectly possible for the BoE to go up while swap rates and fixed rates go down.”

Oportfolio content and communications manager Louis Mason believes lenders “massively over-reacted” when the BoE sharply increased the base rate.

He says: “Now the dust has settled and the state of the economy has improved, lenders are realising that they over-reacted and are comfortable enough to bring the rates back down.

“With the next increase there seems to be a different attitude, and everyone realises that this is necessary to support the economy rather than purposefully leave people out of pocket.

“Most experts agree that inflation has peaked now and will only go down, so there really is no reason for lenders to increase mortgage rates.”

Recent months demonstrated it’s perfectly possible for the BoE to go up while swap rates and fixed rates go down

Although there were concerns that transactions would halt in a high inflationary environment in the months leading to the end of last year, December’s OnTheMarket data showed that 60% of properties had been sold subject to contract within 30 days.

This figure was a 42% increase from November when the fallout from the mini-Budget rocked the market. It was also up on the figure of 53% recorded in December 2021, a time when the market was more buoyant.

As fixed-rate mortgage pricing continues to edge downwards with several lenders reducing rates, OnTheMarket chief executive officer Jason Tebb suggests this may help “restore positivity” in the market.

R3 Mortgages director Riz Malik says January, “surprisingly, started strongly” with people still purchasing.

Malik explains that the main difference between now and previous years is that “fixed rates are not the only ones at the dance; trackers and discounts are also being considered”.

The start of 2023 has been epic, with lenders entering a rate war

Carl Summers Financial Services financial adviser Scott Taylor-Barr agrees that demand from buyers has kept “relatively stable”, adding: “It’s been an increase in remortgages that has kept most brokers busy so far in 2023, which most of us expect to continue for the rest of the year.”

Lifetime Wealth Management mortgage and protection specialist Katy Eatenton suggests that buyer confidence is the highest it has been for the past three to four months.

“A lot of people were sitting tight and they just don’t want to wait anymore. I don’t agree that 2023 will be all doom and gloom as we were led to believe it would be.”

This article featured in the February 2023 edition of MS.

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