A Word On The Mortgage Market

A word on the mortgage market

Hello and welcome to the latest edition of A word on the mortgage market, an edition that we have given a working title of what goes up, must come down (eventually).

For (sadly) as long as we can remember, all the economic indicators have been heading in the wrong direction, at least the wrong direction when it comes to what UK mortgage borrowers want. But (don’t say it too loudly) that was then. And this is now. Things are looking better. Let’s dive in and see what’s been happening over the last few weeks.

What next for bank rate?

While we were all thinking about what to have for lunch yesterday (we had a BLT and some salt and vinegar crisps, in case you care), the Bank Of England’s Monetary Policy Committee (MPC) decided to maintain Bank Rate at its current level of 5%. Eight members voted for 5% and just one voted for a cut.

But, as always, this isn’t the full picture. Many market commentators are giving serious credence to the potential of two further cuts this year. Marking your proverbial card, there are two more meetings of the MPC this year, November 7th and December 19th. A 0.25% cut at each of those meetings would make Christmas even more festive (sort of). And, just to build even more excitement, some people are suggesting we may get deeper cuts than that. We remain optimistically cautious (if one can be that).

Let’s take a look at other economic data that is driving this train of thought.

UK GDP

Last week, the latest UK Gross Domestic Product (GDP) data was released, and it wasn’t particularly buoyant.  GDP is the total monetary value of all goods and services produced within a country's borders over a specific period, and is used to measure the size and health of its economy. Month on month it remained stagnant at 0% (against an expected 0.2%) and 3-month on 3-month it was 0.5% (against an expected 0.6%). Disappointing for the economy at large, but mildly positive for the future direction of interest rates, as lower rates encourage growth.

Over in Europe

The ECB has once again lowered borrowing costs as inflation pressures ease and economic growth slows. The central bank cut its main deposit facility rate by 0.25 percentage points to 3.5%, repeating a similar move from June. While the decision was widely expected by financial markets, the response was subdued due to the ECB's lack of clear guidance on future interest rate changes.

Some are concerned about recession risks and are likely to advocate for additional rate cuts, while others emphasise the impact of wage pressures on the timing and frequency of such moves. Very much a wait and see here.

Across the Atlantic

Big news stateside from Wednesday. The Fed finally made a move (and a bold one at that) by lowering their interest rates for the first time in four years. They cut the cost of borrowing by a punchy 0.5%, from 5.25%-5.5%, to 4.75%-5%, as well as strongly indicating more cuts will be coming very soon. Compared to other central banks, the Fed is a bit late to the rate-cutting party, but it got there in the end. And, as always, what happens in the US always affects what happens in the rest of the world. This, alone, tends to back up the theory that the UK will get meaningful cuts before the end of the year.

UK Inflation

As we were brewing our first cup of coffee on Wednesday morning, the latest UK inflation announcement hit the news pages. Inflation held steady at 2.2% in the year to August, meaning it is still slightly up on the Bank’s target rate of 2%. Of course, it remains significantly lower than at the peak of the cost-of-living crisis in 2022. The fact that it remained just above target was probably one of the key factors in the MPC not cutting rates yesterday.

Swap Rates

Finally, our customary word on Swaps. To remind you, as we always do, Swap rates are a type of interest rate used in the financial markets and a key determiner for mortgage pricing. Here, we have some really good news. Yay! Swaps have been gradually ticking down over the last few months. At the time of writing, 5-year Swaps stood at 3.48%, down from 3.7% this time last month, and 4.6% this time last year. This, as you would expect, is good news for mortgages. Which leads us nicely into the next section of A word on the mortgage market.

What does this mean for borrowers?

Normally, we are super cautious about ever quoting rates in these fair pages. Given the ever-shifting economic climate, we could quote a rate that might disappear in the time it takes to send this note out. That being said, a little generic guidance seems sensible. But, before we do that, can we ever-so politely remind you that the only sensible course of action is keeping in touch with your adviser. It’s a statement of the obvious, but they will help you make the best decision for you.

If you are due to remortgage and have decent equity in your property, then sub-4%, 5-

year fixed rates for 75% Loan to Value are available from a range of lenders. If you look in the tracker market, on the same terms, then rates are in the high 5%’s. This difference feels significantly over-priced, to say the least.

If you are thinking about a more short-term deal, to see what the next few years bring

before potentially committing to a longer-term deal, then 2-year fixed rates start around 4.3% on the same terms, with trackers in the mid 5%’s. Trackers may be worth considering because a good proportion of them come with the option to switch to a fixed rate, penalty free.

As we said, it’s useful to know this, but there is so much more to consider when choosing your next product. Only two words will do. Get advice. Your adviser will be able to advise you whether to remortgage, or simply switch to a new mortgage with your current lender. And they can even change to a better rate at a moment’s notice (should one become available) as they have access to the lenders’ most up to date products every minute, of every day.

It’s good to talk

We very much hope you've found A word on the mortgage market useful and interesting. If you'd like to discuss anything we've talked about. Or indeed if you have any other mortgage related needs, then please do get in touch with your adviser. Until next time, we bid you adieu.

Your consultant: Ricki Wenn
Give them a call:  07816 604 798
Send them an email:  rickiw@mortgageforce.co.uk

All that legal jazz

Of course, you know this, but it never hurts to remind you that:

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP REPAYMENTS ON YOUR MORTGAGE OR OTHER LOANS SECURED UPON IT.

We should also remind you that if you have an interest-only mortgage please make sure you have a suitable and viable method to repay your mortgage at the end of the term.

And some of the products contained in this newsletter are non-regulated, such as Buy to Let mortgages and, accordingly, the protection that is normally afforded on regulated products do not apply.

Interest rates may go up as well as down. Make sure you can afford your mortgage repayments and review your budgets frequently. Should you experience or foresee any difficulties, speak to your lender immediately. For advice in relation to your circumstances on a specific matter, please ask us for a personal illustration.

Each advising firm is owned independently and they will set out the way they work in the initial disclosures to you and are directly authorised and regulated by the Financial Conduct Authority. Mortgage Force (UK) Ltd is registered in England and Wales No: 09394027.