"The golden age of cut-price borrowing is over"
Over the past decade, interest rates reached historic lows, with the base rate falling to the lowest level ever recorded, 0.1%, on March 19, 2020. Since this point, the base rate has been steadily rising in an attempt to tame inflation, with the Bank of England most recently upping rates to 4%.
However, with inflation falling for a third consecutive month, Vikki Jefferies (pictured left), proposition director at PRIMIS, believes it is possible that we have seen the base rate reach its peak – but it is unlikely interest rates will return to the historic lows seen following the financial crash.
Interest rates – ‘the new normal’
“While mortgage rates are likely to continue to fall through the first half of this year, the golden age of cut-price borrowing is most likely over,” she said.
In other words, Jefferies believes rates will probably not return to the lows of between 1% and 2% to which borrowers had become accustomed.
“That said, it is great that we are seeing the market normalise, and we expect that the ‘new normal’ for rates will likely begin at 3% and upwards,” she added.
Maire Cassidy (pictured right), senior product manager at Coventry for intermediaries, said she expects to see lenders lowering prices during the first half of 2023.
“This will encourage greater competition in the market between lenders as the market stabilises and pricing reaches its ‘new normal’,” she added.
Interest rates – swap rates
Despite sustained increases in the Bank of England base rate to date, lenders have been cutting mortgage rates in line with swap rates.
“We saw swap rates become increasingly volatile following September’s mini budget, however much of this volatility has subsided and Bank of England rates are now being factored into product pricing,” Jefferies said.
She believes swap rates will likely continue to fall in the near-term, enabling lenders to continue reducing mortgage rates and pass on savings to consumers, before bottoming out in the first half of this year when a ‘new normal’ will have been reached.
Cassidy said since the initial aftermath of the ‘mini budget’ last year, the market has slowly been returning to some semblance of normality and buyer confidence is starting to reappear.
“The mortgage market has already performed better than many first thought it would in opening months of 2023 and mortgage rates are starting to fall in line with swap rates,” she added.
Interest rates – future outlook
“With our most recent product desk research finding that affordability remains a key focus for brokers, declining rates will provide respite to buyers who are concerned about the mortgage debt burden,” Jefferies said.
Coupled with ever-increasing numbers of products returning to market, in addition to a renewed industry focus on developing products for unconventional borrowers, Jefferies believes brokers have plenty in their arsenal to offer to all varieties of customers looking to maximise their buying power.
Likewise, with approximately 52,000 fixed rate mortgages set to expire in February and March, she said that brokers will be able to offer remortgagers a greater range of choice at lower rates than at the beginning of the year, as the market continues to stabilise.
“Although some consumers may be hesitant to commit if mortgage rates are set to come down further, there is no reason potential buyers should delay on purchases, with lenders able to offer cheaper rates even after locking in,” Jefferies said.
She added that such benefits show the value of seeking specialist advice, as brokers can help customers navigate the product landscape and secure the most competitive rates before completion.
Cassidy noted that at the beginning of the year, we saw flexible mortgage products, such as trackers, which allow borrowers to exit early, become popular, and now we are seeing short term products grow in popularity.
“This, and the potential for an adjustment in house prices, could make homeownership more affordable and open up the market to a greater number of borrowers,” she said.
Cassidy believes that will be welcome news for those looking to step on to the ladder, move or remortgage, especially as the cost-of-living crisis continues.
However, she said these borrowers will still need the support of brokers to help them navigate the market and ultimately find the best mortgage that fits their individual needs and financial circumstances.
What do you expect will be the ‘new normal’ for interest rates? Let us know in the comment section below.
