Have mortgage rates peaked?

In September, the Bank of England’s Monetary Policy Committee (MPC) voted in favour of keeping the base rate on hold by the narrowest of margins (5 to 4). Many commentators were expecting a 0.25% rise, but with inflation falling slightly rather than rising, the Bank decided against yet another hike in the base rate. In response, the cost of many fixed-rate mortgages has now come down, with some of the best five-year fixes dipping below 5%.

The big question is when will rates start to fall? Most experts believe the base rate will remain at the same level until at least the middle of 2024. That’s because, although inflation is coming down, at 6.7%, it is still a long way above the B of E’s 2% target rate. The Bank is acutely aware, though, that high borrowing costs, along with the cost-of-living crisis, are putting the UK’s finances under severe pressure. There is a very real risk of a recession, so they will want to bring the base rate down as soon as they can. Even so, they will only be able to do so if both wage and core inflation come down significantly and that may take a little time to happen.

For mortgages, that means that rates are unlikely to fall much further in the short term. There may be small reductions as lenders compete for the reduced numbers of buyers, but only by small margins. However, as mortgage costs are based on swap rates, which are priced according to the predicted direction of the base rate rather than its current rate, mortgage prices should come down a little sooner.

Below is a selection of the latest best buys from Moneyfacts.co.uk:

Two-year fixed rates:

5.25% from Yorkshire BS. Product fee £1,495. 75% LTV.
5.29% from Nationwide BS. Product fee £999. 60% LTV.

Three-year fixed rates:

5.23% from Yorkshire BS. Product fee £1,495. 75% LTV.
5.29% from first direct. Product fee £490. 75% LTV.

Five-year fixed rates:

4.84% from first direct. Product fee £490. 75% LTV.
4.87% from first direct. Product fee £490. 75% LTV.

Discounted variable:

4.69% For 2 years. From Progressive BS. Product fee £0. 75% LTV.
5.29% For 2 years. From Beverley BS. Product fee £1,495. 65% LTV.

BUY-TO-LET (BTL)

Best two-year fixed rate: 4.49% from The Mortgage Works. Arrangement 3.00% Advance. 65% LTV.

Five-year fixed rate: 4.7% from The Mortgage Works. Arrangement 3.00% Advance. 65% LTV

Best Discounted variable: 5.30% For 2 years. From Monmouthshire BS. Arrangement 2.00% Advance. 75% LTV.

If you’re thinking of investing in a new property, we have plenty for you in our next auction – just follow this link.

The information we provide is our personal opinion and should not be relied upon for financial advice. Should you need financial advice or guidance please contact an appropriate professional.

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