Article Summary

Home-owners can start to relax as mortgage rates have begun falling despite the Bank of England’s base rate continuing to rise. Mortgage rates hit their highest point on 20th October at 6.65% for a two-year fix. At the time of writing, mortgage deals can be found at rates as low as 4.99%.

Why did the rates increase in the first place?

The sharp rise in mortgage rates were due to the mini-budget announcement by ex-Chancellor Kwarteng at the end of September, which caused the UK economy to crash. This was due to the required tax cuts and loans, which were unsustainable. It has started recovering recently though, with signs to continue on this upward trajectory.

We are in an unusual situation to see mortgage rates come down just as the Bank of England’s base rate rises, as it determines the cost of borrowing. The mortgage rate is also significantly impacted by other factors such as swap rates, which are long-term interest rate predictions.

Will they keep decreasing?

The governor of the Bank of England, Andrew Bailey, highlighted last week that the 0.75 point rise in base rate should not lead to higher mortgage rates. We also wrote about the increasing mortgage rates last week, and how they would not stay that high for long.

John Charcol mortgage broker Ray Boulger believes the cost of fixed-rate mortgage deals could keep decreasing “slowly and steadily”. This would be dependant on the Treasury’s autumn statement on 17th November, and only if it doesn’t negatively impact the financial markets.

In addition to this, Trinity Financial Broker Aaron Strutt said he was hopeful that even the highest fixed-rate mortgages would drop below 5% “over the next few weeks”. However, he also stated that lenders weren’t under any real pressure to drop their rates soon.

One factor that influenced the mortgage rate increases we saw was not one linked to the economy. The large amount of mortgage applications that lenders faced as borrowers scrambled to get the best deals while rates soared following the mini-Budget announcement. This had a vast impact on rates. Some banks and building societies upped their mortgage rates to help reduce their workload as well.

A more technical reason for the decrease is swap rates, which was briefly mentioned in the introduction. These are used by banks and building societies to try and predict the path of the base rate. Financial adviser at Carl Summers Financial Services, Scott Taylor-Barr, indicated that “Swap rates are coming down, and so fixed rates are coming down too”.

What does this mean for property investors?

The decrease in mortgage rates is great news for potential and current UK property investors. It shows that the market is recovering following the crash over the past couple of months, as predicted by many financial experts.

Potential property investors can feel more confident now in purchasing a property in the UK, as mortgage rates continue to drop and continue to show signs of doing so. This is even more relevant to those who are specifically looking at off-plan investments, as over the next 12 months, interest rates should soften further.

There are a lot of opportunities present for investors right now. We at NPG have negotiated hard on some of our projects, getting prices 20% below market value.

The fact that rates did not stay high for long shows the strength of the UK financial market, as if it does become negatively impacted, it always recovers in the long run. This links to the property market too, as if you invest long-term, small crashes or market hits like this will not affect your investment. When it comes to property, we should all be thinking in decades. 

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