Fixed mortgage rates have finally stabilized after a period of constant increases. In July, two-year fixed mortgage rates reached a high of 6.86%, while five-year fixed rates hit 6.37%. However, after recent inflation figures fell below expectations, the market has calmed down. As of August 7th, five-year fixed rate deals averaged at 6.35%, while two-year fixed rates were at 6.84%. This is still higher compared to June 1st rates of 5.17% and 5.49% respectively, and significantly higher than the rates two years ago at 2.54%. Cheaper mortgage deals are available for those with larger deposits and looking for a five-year fix, although none are cheaper than around 5.25%.
Mortgage rates are influenced by predictions rather than actual base rate changes. Banks change fixed mortgage rates based on their forecasts of how high the base rate will ultimately go and how long inflation will last. Higher than expected inflation figures in May raised the possibility of future base rate increases. This led to an increase in both gilt yields and swap rates. However, the markets reacted positively to news of decreased inflation in June, resulting in major mortgage lenders slashing their rates. These rates can be monitored through swap rates, which reflect financial institutions’ expectations of future interest rates.
Mortgage rates began to rise in December 2021 with the Bank of England’s increase in the base rate to combat rising inflation. The rates accelerated after the mini-Budget in September, which caused the pound to tumble and unsettled bond markets. However, after the new Chancellor reversed the mini-Budget announcements, the markets calmed down and borrowing costs, including mortgage rates, began to fall. Despite the recent decrease, the base rate is expected to continue rising until it reaches between 5.5% and 6%.
For borrowers coming up to a remortgage, the possibility of further rate drops is of concern. The direction of swap rates can provide clues about future rate trends. By comparing rates, speaking with a mortgage broker, and considering remortgaging early, borrowers can secure favorable rates. It is also important for homebuyers to secure rates early to know their monthly payments. Higher mortgage rates may limit borrowing ability and potentially lead to a decline in house prices.
To compare mortgage costs and find suitable deals, it is recommended to consult a mortgage broker. Keep in mind that rates can change quickly, so it is advisable to act promptly and seek professional assistance. The property market has experienced a shift from double-digit growth to a potential decline in house prices. Experts predict a 10-15% fall, with some even suggesting a 35% decrease. Despite this, recent positive inflation news may lead to a peak in interest rates, potentially resulting in a decrease in fixed mortgage rates. Overall, the market is becoming more favorable for buyers, allowing negotiations on price while sellers can still make a profit. The Bank of England has been gradually increasing the base rate, and it is expected to continue rising.
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