Mortgages – there’s good news and bad news

Right now we’re seeing a so-called mortgage price war – well, more like a playground tussle. Because while lenders are cutting rates at long last, they’re still not exactly pulling out all the stops to entice new customers. I assess the outlook for homeowners right now and provide some tips on how to get the best deals.

Just a fortnight ago, the Bank of England decided to hold the base rate at 5.25% – it was the first time it hadn’t gone up since December 2021. It came as a big surprise to market watchers, who had previously felt that even a 0.25 percentage point rise would lead to mortgage rates dropping. That’s because lenders were already ‘pricing in’ (or betting on) interest rates reaching their peak this Autumn amid encouraging signs that inflation was coming back under control.

So when the base rate remained stuck, commentators were predicting there would be a veritable festival of rate-cutting among lenders, who would be positively vying for new customers by offering cheaper deals. But while we have definitely seen rates come down, don’t get too excited.

If you’re one of the quarter or so million people whose fixed rate mortgages are ending this Autumn and Winter, things are looking slightly better than they were a few months ago. When the Bank of England decided to raise the base rate to 5.25% in early August, the typical two year fixed rate was around 6.85%. Now, it’s 6.47%. It’s hardly seismic.

Don’t get me wrong, every little helps when it comes to mortgage, but it’s far from the beguiling “rate war” suggested by the headlines. These tend to refer to more enthusiastic cutting of five year fixed rate deals, with the likes of Virgin Money, TSB and HSBC all now charging less than 5% for five year fixed rate deals.

If you’re in the market for a five year deal, it’s certainly worth knowing about these market leaders as the average five year fix at the moment is 5.97%.

Swap rates are what influences mortgage lenders, and with the two year swap rate currently sat at 5.1%, we probably shouldn’t expect to see shorter-term deals fall down towards 4% anytime soon. So there is a logical argument for fixing for longer.

But whilst longer fixes are becoming more popular, there’s a reason why millions of homeowners (including myself) will probably stick to the two year timeframe for now. People like keeping their options open – and given the unpredictability of the past few years, who can blame them?

In the meantime, here are some tips if your deal is coming up for a renewal:

  • You can lock into a new rate 3 – 6 months ahead of your current one ending. This may only be helpful if you sense that rates will rise again, but it’s good to know you’re not entirely at the mercy of where the base rate will be at the moment your current deal expires
  • Watch out for fees. These have to be weighed up alongside the rate  – often low rates come with high fees and vice versa
  • Think about overpaying your mortgage. If you have any spare cash, using it to whittle down your mortgage while rates remain relatively high seems sensible to me.
  • Support is available as a last resort. You could extend the term of your mortgage if you’re struggling or ask for support that won’t affect your credit score under the new Mortgage charter, but bear in mind this is temporary (it only lasts six months) and beyond that, your payments may actually go up in the long run so your mortgage lender can recoup the lost money. That’s why it’s much better to do everything you can to keep up mortgage payments, even if it means making big cutbacks elsewhere.
  • Speak to a broker. This is my number one piece of advice because they’re the experts – let them help you suss out what’s what.

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