The past 2 years have seen mortgage rates spiral but it seems as though finally, the UK may have hit its peak, which should be cause for celebration for homeowners and buyers, you would think. However, this is where caution is needed. The Bank of England decided to hold rates at 5.25% for a second time, after 14 consecutive increases, however, they are keen to point out that dropping rates from here is not on the agenda yet.
This base rate holding at 5.25% poses many questions and understandable confusion among homeowners and potential buyers. Are we likely to see more affordable mortgage deals? Should we consider locking in a fixed rate now? This is all dependent on the type of mortgage you have and when your deal ends.
Let’s take a further look into what this means for you.
Why Have Rate Rises Been Paused?
Economists expected a slight drop in September of this year, however, the (CPI) Consumer Price Index measure of inflation remained at 6.7%, which means that inflation remains over 3 times above the Bank of England’s inflation target of 2%. Due to this, the cost of borrowing was raised in the hopes of reducing demand and slowing the flow of new money into the economy.
The theory behind pausing the base rate at this level is that more expensive mortgages and better savings rates should encourage people to save more and spend less, pushing inflation down further. There doesn’t seem to be any inclination of the base rate dropping soon, the only way it possibly would drop is by a sudden drop into a recession, which would lead the BoE to cut rates quicker than they would like.
Mortgages: What Does This Mean for Borrowers?
For those who are due to remortgage in the near future, the higher base rate has created somewhat of a crisis. There are currently 1.6 million mortgage borrowers expected to roll off their current, lower fixed-rate deals, which may have been around 2% or less. The average 2-year fixed rate mortgage is now 6.31% according to Moneyfacts and the average 5-year fixed is 5.87%, which means that a big leap in payments is just around the corner for these homeowners.
These are no small numbers, and some are quite understandably causing millions of homeowners to wonder which way to turn. It’s important to remember that these are average rates across the market. The cheapest deals will paint a slightly more positive picture, particularly for those with big deposits or a build of equity in their home. This is where we would highly recommend speaking with a mortgage advisor to gain a full picture of the market and what’s available right now.
What to do if you're on a Fixed Rate.
At present, some lenders have started to reduce their fixed rates and there could be further cuts from other lenders. Fixed rates could fall further following cuts to gilt yields, which are long-term interest rate predictors that affect the cost of fixed-rate mortgages.
The question on everyone's lips right now is, should I get a fixed mortgage? As most mortgage holders in the UK are on a fixed rate, what you should do when your term ends depends entirely on the following:
- Locking in – if your current deal is ending in the next 6 months it could be wise to lock in a fixed deal now to give you insurance against any further rate rises. This option also allows you to switch to a cheaper deal if one launches before your current rate finishes.
- Trackers – if your current deal is ending soon you may want to consider a tracker, even if temporarily. You could get a tracker that doesn’t come with early repayment charges, then if rates come down, you can move onto a fixed deal, penalty-free at your time of choosing. A side note to trackers is that, even though the base rate is not expected to rise above 5.75%, there are no guarantees and as trackers follow the base rate, you will have to pay the extra if the rate rises.
- Lenders Standard Variable – with an SVR, the interest you pay can change at any time, which means that they are far more expensive right now due to the continuous rise of the base rate. Switching to a fixed deal can provide price certainty, however, if you are waiting for fixed rates to drop, you could opt for a tracker in the meantime without an early repayment charge, and switch to a better fixed-rate deal later.
Speak to your Trusted Mortgage Advisor in Manchester
If you’re feeling confused or want more information on how the base rate could impact you and your mortgage prospects, speaking to our friendly team at TaylorMade, a specialist mortgage broker in Manchester, could be the perfect solution.
It can be overwhelming trying to make the right decision on your own, searching for the best deal for you and your family, this is where TaylorMade can help.
We are a dedicated, professional, and independent mortgage advisor in Manchester, with access to the best mortgage rates on the market today. We understand the financial difficulties facing everyone right now, and our friendly, helpful advice could be just the solution you need.
Contact us today, TaylorMade, your expert mortgage broker in Manchester.
