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What's Happening with Mortgage Interest Rates?

What's Happening with Mortgage Interest Rates?

The past few weeks have seen a sudden change in mortgage market activity, with nearly 800 rates pulled amidst uncertainty over the financial markets. What’s happened to mortgage rates, and when can we expect to see them reduce?

According to Moneyfacts, nearly 800 residential and buy to let mortgage rates have been pulled due to lender uncertainty over the stability of the UK financial markets.

With inflation figures much higher than expected, forecasts for UK interest rates have increased.

Earlier this year, we predicted that the Bank of England would increase the Base Rate (BBR) for the final time after twelve consecutive rises. Now, however, it’s clear that this is a very different story. It’s important to understand the sudden switch in sentiment toward UK inflation levels and how this has now impacted predictions for the Base Rate.


What has happened to UK inflation?

The core inflation rate for the UK reached 6.8% in April 2023, up from 6.2% in March. Core inflation measures the rate of inflation excluding food and energy prices, which are typically much more volatile than for other goods or services.

On the other hand, overall inflation in the UK saw a sharp drop, from 10.1% to 8.7%, mostly due to the decline in housing and energy inflation. The increase in core inflation, in contrast to the drop in overall inflation, indicates an underlying issue that higher prices are becoming embedded across the UK economy.

Mortgage lenders had felt confident in the UK money markets prior to the announcement of the core inflation figures. However, since then, SWAP rates have risen to 4.5%, whereas they had been comfortably sitting at around 3.8.-3.9%.

The inflation news, coupled with the US economic turmoil, has only extenuated the concerns the UK financial markets currently face. With the debt ceiling deal just marginally averting a US default, it’s clear that many industry experts will now be back-tracking on their previous Base Rate predictions.

Unfortunately, the financial markets are at a challenging moment in time, and we will likely now see further increases to BBR in an attempt from the Bank of England to soften the blow.


What are the new predictions for Base Rate?

As it stands, economists now predict a 0.25% rise to the Base Rate later this month. We expect that the Base Rate will likely stay around the 4.75% level for the rest of the year, however, we are by no means ruling out the possibility of a further 0.25% in September. This would see the Base Rate remain at 5% for the most part throughout 2024, to ease back down to its current pricing of 4.5% toward the end of the year.


Base Rate Trackers

As the market grows volatile and with Base Rate predictions sitting much higher than anticipated, it’s essential landlords now review their options. This is particularly important for those on Base Rate Tracker mortgages.

Landlords on Base Rate trackers will have already seen a significant increase to their monthly repayments this year. With BBR now 1% higher than it was at the start of 2023, it’s likely many property investors will already be considering fixing onto a new product that offers more financial security.

However, what’s clear now is, anyone on this type of mortgage product can expect to see their mortgage repayments increase again imminently. As such, it’s worth discussing your options with a broker, who can cost up whether it’s worth paying your ERCs now to save in the long-term with a fixed-rate deal.  


What will happen to Fixed Rate products?

We saw fixed mortgage rate pricing peak back in Autumn at 6.94% in the wake of the mini-budget, and rates have eased down substantially since then. This is despite the consecutive Base Rate rises we have seen in the same time period.

Upon the announcement of the new inflationary figures, the vast majority of mortgage lenders removed their products from the market. While some have since increased their pricing in anticipation of the BBR increase later this month, many have yet to reintroduce entire product ranges from the market altogether.

Lenders will be increasing their pricing to maintain their profit margins and factor in the increase in SWAP rate pricing. As such, now is the time to secure a deal ahead of further interest rate rises. As we face potentially two further Base Rate rises this year alone, it’s clear that we are unlikely to see interest rates remain at their current levels for much longer.

If you would like to discuss your options, then please get in touch with our expert brokers. Our industry knowledge and expertise is unrivalled, and our team can offer you guidance and support throughout this challenging moment in time. Contact our brokers by calling us on 0345 345 6788, or by submitting an enquiry here.