Leaders offer their outlook on the state of the market
Mortgage rates may have already peaked – but lenders are unlikely to return rates to the levels previously seen any time soon.
Those are just some of the verdicts of leading mortgage executives when quizzed on the state of the market and what’s going on with mortgage rates.
UK mortgage rates – what’s been happening?
September and October last year saw a significant spike in future interest rate expectations as markets lost confidence in the UK’s ability to control inflation and cowered at the prospect of increased government borrowing to fund its spending plans.
This led to lenders having to withdraw products and then re-enter with significantly higher product rates.
“Since those difficult days, we have seen market rates fall back and stabilise which has helped mortgage lenders pass those interest rate declines onto customers,” said David Landen (pictured), chief executive at Hodge.
UK mortgage rates – what happens next?
Landen said that every lender has their own unique model so it is difficult to predict what will happen across the market, however he expects to see some further marginal falls.
“But as we, at least for the time being, have entered a more stable interest rate environment, we could have reached a new level for mortgage rates,” he added.
Karen Rodrigues, director of sales at eConveyancer, believes it is unlikely rates will return to the levels the market had become used to.
“Instead, we expect lenders to find a middle-ground in the short term as they recover from the challenging last quarter of 2022,” she added.
Rodrigues said that as the beginning of this year shows a stabilising market, some lenders have made large cuts already, and she added that it is likely more lenders will be encouraged to neutralise rates as they evaluate their accounts and prepare for Consumer Duty.
UK mortgage market – a new normal
After 14 years of near zero rates and the many shocks to the economy we have seen during that period, Landen said there is no ‘normal’ market.
However, he does believe the market is coming to the end of this difficult cycle of increasing the base rate to curb inflation, with the base rate likely stabilising around the 4% level.
“This is due to inflation forecasts starting to come down quite rapidly in 2023, as energy price rises moderate and the Bank of England waits to see the existing impact of the base rate tightening,” Landen said.
The caveat is, any further shocks, either geopolitical or economic, Landen believes, will upset the stable environment, impacting the future outlook for inflation and growth; if this happens, then he said the Bank of England will have to continue to act.
“Lenders will continue to offer attractive rates to match demand while dipping in and out, this has always been part of the mortgage market,” Rodrigues said. She also anticipates lenders offering competitive product transfer rates to encourage borrowers to stay with them, instead of seeking alternative options elsewhere. In fact, she has already spotted this trend occurring with tracker rates coming back to the market, a step away from two- and five-year fixed rate deals.
What are you expecting from interest rates over the course of 2023? Let us know in the comments below.
