A positive turn for the mortgage market

The Bank of England (BoE) voted to hold the base rate at 5.25% on Thursday, May 9th, for the sixth time in a row, with two members deciding it was time for the first rate cut.

While this decision was widely anticipated, the positive minutes from the Monetary Policy Committee (MPC) meeting appear to have alleviated pressures on the mortgage market. This is evident in the recent easing of SONIA (Sterling Overnight Index Average) swap rates since the meeting, which are crucial for determining fixed-rate mortgage pricing.

The mortgage and property markets began the year on a high note, supported by reduced mortgage rates and a positive outlook for the year ahead. However, fears over inflation, in particular over in the US, disrupted this momentum, influencing swap rates and mortgage rates to rise again.

Thankfully, the outlook is looking more promising once again. The Bank of England’s economic analysis has been influential in setting the tone for mortgage rates leading into summer. Its upbeat tone should at the very least support a period of stability. Governor Bailey expressed optimism, noting that “things are moving in the right direction,” raising hopes for a possible rate cut this summer. However, much depends on the development of inflation ahead of the next MPC meeting on June 20th.

Likewise, the prospect of an interest rate cut is also threatened by the pace of wage growth, which despite showing tentative signs of cooling off over the last few months, the pace of decline has been cooling off. Regular wage growth, excluding bonuses, was 6% higher over the three months to March compared to a year earlier, according to the Office for National Statistics.

The recent reduction in swap rates may add a period of calm and at the very least stop any further increases. In the future, some lenders might reverse recent rate hikes once they gain confidence in this new trend and adjust to the changing cost of funds. While the first cut in the base rate may signal the end of the tough economic period and boost confidence, it’s important to note that this may not translate to significant reductions in fixed-rate mortgage pricing as lenders have already factored expectations in.

An advantageous buying window

Despite a strong start to the year for buyer demand, recent incremental increases in mortgage rates have eased this slightly. However, coupled with a slowdown in house price growth, this has created an advantageous buying window before the market potentially shifts later this year.

While it’s easy to focus on short-term fluctuations, adopting a long-term perspective is crucial when buying property. Savills recently upgraded their five-year forecast for UK house prices, citing a robust start to 2024 and improved demand indicators. They now expect house prices to grow by 2.5% in 2024, revised from a -3.0% forecast in early November 2023, and by 21.6% by the end of 2028, revised from 17.9%.

Looking forward

The mortgage market continues to display positive signs. Average rates for fixed-term loans have declined significantly since their peaks in late 2022 and mid-2023, with many rates currently sitting in the 4%s.

Average mortgage rates are higher than most people are used to and the key is to consider your mortgage options as early as possible. If coming up for a remortgage, you should almost always look to secure a rate as early as possible, generally up to six months in advance.

It typically takes two to three months to complete on a mortgage from offer to completion, subject to solicitor involvement. Your Private Finance consultant will endeavour to keep an eye on rates until completion and advise if there are preferable options available to you during this time. Switching to a lower rate could potentially save you thousands over the fixed term period of a mortgage. It is important to note that most lenders will not monitor the market for you or let you know if a better deal has entered the market.

With so many options available it can be confusing to know which mortgage option is right for you. This is why it’s important to choose the right mortgage adviser with access to the whole market, such as Private Finance, to guide you through the process.

If you would like to discuss your mortgage options with a qualified professional, you can speak with our team on 0800 980 8777, or via email at info@privatefinance.co.uk

Please remember that your home may be repossessed if you do not keep up repayments on your mortgage.

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