Mortgage interest rate warning as increases surge and low deals pulled | Personal Finance | Finance

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Mortgage warning as rates ‘settle’ after ‘significant’ drops in January (Image: Getty)

Mortgage rates are now “settling” after the significant drops seen in January, property analysts warn.

The Bank of England’s latest decision to hold the Base Rate at its historic 16-year high of 5.25 percent may spell “more of the same” over the coming weeks.

Early January saw a spate of lenders launching new deals at sub-four percent, although new deals of these kinds have reduced.

Following news that NatWest and Halifax pulled several mortgage deals from the shelf recently, Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management said: “There’s definitely been a drop in confidence over the last week, with withdrawals and increases from four of the big six – will HSBC and Nationwide follow suit?

“It will concern borrowers that are due to remortgage over the coming months if they haven’t secured a rate already.”

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The Bank of England opted to hold the Base Rate at 5.25 percent this month (Image: Getty)

Matt Smith, Rightmove’s mortgage expert said: “It’s been a promising start to the year for housing market activity, with more people than this time last year listing their home for sale, looking to buy, or getting a Mortgage in Principle to see what they can afford.

“For anyone thinking of moving but still holding back from taking action, the slight uptick in average rates in some lower Loan-To-Value brackets this week is a reminder that average rates won’t fall forever and mortgage rates appear to be settling after significant drops at the start of January.”

Myron Jobson, senior personal finance analyst at interactive investor, said: “The latest hold on interest rates could mean more of the same.

“Substantial falls in gilt yields, a benchmark for pricing fixed-rate mortgages, would be needed before we can expect more significant cuts in mortgage rates.”

Just over half of UK homeowners with a fixed-rate mortgage have had to reprice their mortgage deal since rates began rising at the end of 2021.

This leaves about 2.3 million residential mortgage holders still set to see a jump in their repayments over 2024, with about 1.3 million facing an increase of more than £300 a month.

However, it’s been suggested that, as “painful” as rate rises have been for many people, there are “increasing signs” that Base Rate rises are having an impact on the economy, and inflation is heading in the right direction.

Mr Smith said: “Another hold in the Base Rate today also shows that the Bank will also be cautious not to overshoot Base Rate rises, and will be keen to maintain the current stability.

“The market appears more robust than last year, evidenced by the fact that the surprise uptick in inflation a couple of weeks ago didn’t derail the downward trend of mortgage rates. The big picture remains the same – the Base Rate is unlikely to rise further, and mortgage rates have some room to come down further before settling.”

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According to Rightmove, average two and five-year fixed mortgage rates include:

  • The average five-year fixed mortgage rate is now 4.65 percent, down from 4.81 percent a year ago
  • The average two-year fixed mortgage rate is now 4.99 percent, down from 5.13 percent a year ago.
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The Bank of England said it needs to keep monetary policy “restrictive for sufficiently long” to make sure inflation returns to target and remains there, adding it would “monitor closely” signs of persistent inflationary pressures and the overall strength of the economy.

Policymakers are keeping a close eye on economic measures including wage growth, the jobs market, and services inflation.

Does this mean mortgage rates will fall later in the year?

Kellie Steed, mortgage expert said despite the Bank of England maintaining the 5.25 percent rate since August 2023, many financial forecasters expect the bank’s Monetary Policy Committee (MPC) to make cuts to the Base Rate later in the year, given the significant fall in inflation over the past few months.

Ms Steed said: “Due to expectations of cuts later in 2024, many mortgage lenders had already begun reducing their rates ahead of today’s announcement. Both big six lenders, such as Halifax and HSBC and a number of building societies have reduced their fixed-rate deals multiple times throughout January. Some now have selected products available at around four percent, and even slightly below that in certain circumstances.

“However, it remains to be seen whether there will be further cuts to mortgage rates in the coming days as a result of today’s decision.

“Some economists are predicting that the Base Rate won’t fall until May or June, however, London Stock Exchange Group data shows that the base rate is largely expected to fall an entire percentage point, down to 4.25 percent, by the end of 2024.

Should I remortgage now or wait for further rate reductions?

As ever, Ms Steet said it depends on a person’s current circumstances when it comes to remortgaging.

She explained: “If rates and inflation continue to travel in their current direction, it’s perfectly possible that lenders will be offering lower rates as a result than they are today, before the end of 2024

“However, if you’re already on your lender’s SVR (standard variable rate) and don’t intend to move home any time soon, is it worth paying a considerably higher rate whilst you anticipate a reduction that is as yet uncertain?

“The average SVR in the UK at the moment is still fairly high, at 8.74 percent, so if you’ve got a high mortgage balance, this could be having a real impact on your affordability. Especially when some of the better fixed and variable rate deals available at the moment are around half of that.”

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