How Will last Weeks Interest Rise Affect Future Mortgage Rates?
Should You Be Worried About Last Weeks Interest Rate Rise?
The Bank of England's recent decision to raise the base rate to 3.5% has masked a wider trend of mortgage rates decreasing as lenders become more confident that a period of high rate increases is coming to an end. In recent weeks, various lenders have begun to lower interest rates on their mortgage products.
According to an expert with nearly 35 years of experience in the mortgage industry, the market is showing signs of stability following the mini budget. This stability is partly due to an increase in the strength of the pound and a drop in gilt yields, which has a knock-on effect on swap rates, a major determinant of product pricing. As a result of these favorable changes, lenders are returning to the market with competitive rates, in some cases cutting rates by up to 0.50%.
In addition to this, there is a more positive long-term outlook for the base rate, which means that some five-year fixed-rate products are now cheaper than their two-year counterparts. It is possible that we may see further rate reductions from lenders in the coming weeks, especially if they have lending targets to meet in the new year. However, it is expected that rates will level off rather than continue to decline to the levels seen at the beginning of the year.
Mortgage applications have naturally slowed in the past month, giving lenders some breathing room to catch up on their pipeline. However, current demand does not reflect what the market has experienced for most of 2022, leading experts to believe that lenders will maintain competitive pricing in order to attract the lending volumes they need for 2023.
While the best fixed rate mortgages available in today's market have fallen and are now available below 5%, they are still higher than the rates that were available at the beginning of the year, which were around 2%, according to data from Moneyfacts. In this higher rate environment, the value of advice is especially important, especially as many two-year and five-year deals are set to expire in 2023.
The Bank of England has chosen to increase the base rate at consecutive Monetary Policy Committee meetings throughout the year, including its latest rise to 3.5%. While the mortgage market has calmed, the base rate is still the main mechanism for managing inflation, and until these pressures ease, it is expected that the Bank of England will vote to increase borrowing costs. However, it is speculated that the base rate may top out at 3.5% to 4%, which is lower than the 6% forecast that was made just a few months ago.
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