Could Mortgage Rates be on their Way Back Down?

It’s fair to say we have witnessed our fair share of mortgage fluctuations in the UK over the past year. The base rate of interest has risen 13 times since December 2021 in an attempt to bring inflation back under control, and now finally we are seeing numbers heading in the right direction.

Inflation recorded a larger-than-expected drop to 7.9% in June and after a steep 15-month incline, it may give the Bank of England room to be less aggressive with rate increases going forward. The big question is whether the 1.3 million households who need to remortgage in the next 12 months will see the benefits of its decline.

Have UK Mortgage Rates Peaked?

The question on every homeowner's mind right now is if mortgage rates are headed for a downward trajectory, and whilst that’s very difficult to predict, it would seem the numbers are suggesting so. The reaction to the steeper-than-expected drop in inflation has encouraged some lenders to lower their rates almost immediately. Moneyfacts has reported* that the average rate on a 2-year fixed-rate mortgage has dropped to 6.79%, from 6.81% the day before. The average rate on a 5-year fixed rate dropped from 6.33% to 6.31%. This is a welcome relief to those seeking a fixed-rate mortgage in the near future but it’s far too early to predict with any confidence if this decline will lead to further, more meaningful rate decreases.

That being said, those looking to remortgage to a new fixed rate deal will still see far higher prices than 2 years ago, and we are still seeing small rate increases in a bid to continuously tackle inflation, the most recent is thought to hit borrowers before Christmas.

Although the consensus is that mortgage rates are on their way back down, the base rate is still predicted to rise. The peak of 6% the base rate was predicted to hit by the end of this year is being revised down by markets and financial experts and it appears to be working, but the Bank of England will still want to continue with a strategy of small, regular increases to continuously battle inflation.

How Will This Affect Mortgage Rates?

With inflation rates on the decline, it would be easy to think that mortgage rates could instantly follow suit but there are more factors that lenders need to take into account, including lenders playing it safe and needing to protect themselves if costs go back up, meaning they are unlikely to drop their prices, opting to retain a margin that will keep their costs around current levels.

For those on tracker and variable rate mortgages it will, unfortunately, mean that if forecasts prove accurate, difficulties will still ensue. These types of mortgages follow the base rate of interest, and if this continues to rise, even if less steeply than originally planned, you will still see this rise reflected in your repayments.

In lighter news, some lenders of fixed-rate mortgages have already started to react by lowering their mortgage rates. As mentioned previously, most will still want to protect themselves amidst the rollercoaster of rates, but some have decided to follow suit and lower their prices. However, if inflation halts then the Bank of England can do nothing more than push the base rate back up.

Not Out of the Woods Yet.

So, the main takeaways for today are that inflation has dropped lower than expected, which in turn will have a positive impact on mortgage rates, specifically those on fixed-rate mortgages. However, inflation is still too high and remains higher than our European peers, which means that the Bank of England will continue to increase, albeit less steeply than previously planned, to tackle the problem.

How Will This Affect You? Speak to a Leading Mortgage Advisor in Manchester.

It’s hard to say how this will impact every homeowner, as our circumstances are all vastly different, but one thing is certain: understanding your options and planning as far in advance as possible is your best option.

TaylorMade is a leading and independent mortgage broker in Manchester, and we make it our priority to ensure gaining a mortgage or remortgaging is as easy as possible. We provide a personalised mortgage solution, designed specifically to fit your needs and circumstances, and can ensure the best deals on the market today are available to you.

We can help to make this a less confusing and stressful time, so come and speak to one of our team at TaylorMade, a friendly and helpful mortgage broker in Manchester.