Over half of borrowers won't switch deals at current rates
Prolonged higher interest rates could lead to ‘significant hardship’ for many, as they are challenged to afford their monthly mortgage payments, according to leading broker firm.
London-based broker, John Charcol, has acknowledged the growing struggle for households to meet rising costs, following a new report that suggests that one in ten – 13% - of mortgage holders aren’t confident in their ability to meet their mortgage repayments over the coming months.
The findings from price comparison website Compare The Market have also found that 57% of mortgage holders are unlikely to switch their mortgage to a new deal while rates remain at current levels.
Furthermore, over one in four (27%) of the just over 2,000 people surveyed have reduced the amount of money they save each month, while a similar number (26%) say they are unable to save any money at all.
In an interview with The Guardian, the Bank of England’s governor Andrew Bailey has shared that it could adopt a more aggressive stance on interest rate cuts if inflation continues to ease.
“With interest rates staying higher for longer, it's no surprise that many households are feeling the financial pinch, particularly mortgage holders,” said Nicholas Mendes (pictured), John Charcol’s mortgage technical manager and head of marketing. “The fact that 13% of them are not confident in meeting their repayments reflects a growing struggle to cope with escalating costs. Additionally, the hesitance of over half of mortgage holders to switch to a new deal underscores how higher rates are deterring people from exploring potentially better options, which could save them money in the long run.”
He told Mortgage Introducer: “The challenges extend beyond mortgages - credit card users are also facing a cliff edge as many approach the end of their 0% interest periods, risking high-interest charges unless they can shift their debt. Financial resilience is being eroded, as seen by over one in four households unable to save anything each month. These figures make it clear: prolonged high rates are creating a perfect storm where rising costs and reduced financial buffers could lead to significant hardship for many.”
How much impact would further base rate cuts have?
Noting that HSBC and Barclays both yesterday announced that they were both cutting their rates, Mendes reasoned that if the Bank of England cuts the base rate to 4.75% or 4.5% by the end of this year, it could significantly impact mortgage rates, though the exact timing and scale of these changes – he said - would vary among different lenders and products.
“Lenders typically adjust their offerings to reflect changes in the base rate, but there is often a lag as they consider broader economic factors, including funding costs and market competition,” he said. “Currently, swap rates, which lenders use to hedge against interest rate fluctuations, have already started to fall. Five-year swap rates have been anticipating future base rate cuts, giving lenders more flexibility in pricing their mortgage products.
“As a result, five-year fixed-rate mortgages—especially those with lower loan-to-value (LTV) ratios—are often among the most competitive options available. Notably, swap rates for two-year funds have dropped below 3.9%, with further potential rate reductions already factored into market forecasts.”
Read more: Things are getting better – Bank of England
What is the sentiment among lenders?
This stability in swap rates has boosted lenders' confidence, Mendes observed, allowing them to reduce mortgage pricing while narrowing their margins to remain competitive. Lenders are likely to pass on these reductions promptly, he said, to attract new business and outcompete rivals, offering a significant advantage for consumers.
“If the base rate drops to 4.75% or 4.5% sooner than the market currently expects, it could provide a substantial boost to the property and mortgage markets, particularly after the challenges faced over the past two years,” predicted Mendes. “Given the competitive nature of lenders, if we see two rate cuts this year, I expect they will be quick to pass on reductions in funding costs to consumers. As a result, five-year fixed rates in the low 3% range could become available before the year ends.”
Looking further ahead, Mendes suggested that if the Bank of England continues to be aggressive in easing monetary policy—with forecasts already suggesting a reduction at each Monetary Policy Committee (MPC) meeting, supported by favourable economic conditions such as falling inflation and a more stable economy—there is a possibility that mortgage rates could see further reductions in the first half of next year.
“If this scenario unfolds, we could see rates drop below 3%, potentially reaching 2.75% by early to mid-next year for five-year fixed mortgages,” he commented. “The gap between two-year and five-year fixed mortgage rates is expected to narrow, making it essential to seek professional advice rather than being influenced solely by current ‘best buys’.”
