The previous year posed significant challenges for those looking to borrow. In the aftermath of Liz Truss’s mini-budget, mortgage interest rates surged, with the early part of this year witnessing rates that were quintuple what they had been two years prior. For many, this signaled a period of caution and reconsideration of their property-related decisions.
The silver lining appears to be on the horizon. With inflation decreasing, there’s renewed optimism in the market, leading to a gradual reduction in mortgage rates. The Consumer Price Inflation (CPI) started the year at a staggering 10.1%. However, by August, it had receded to 6.7%. Leading economic analysts at Capital Economics (CE) project this figure to drop below 5% by the end of 2023 and anticipate it settling around 1.2% by this time next year.
What Does This Mean for the Bank of England Base Rate?
The Bank of England’s base rate is a pivotal indicator that influences lending rates across the board. CE’s current predictions suggest stability in the rate, holding it at 5.25% for the upcoming year. They further forecast a decline to 4.75% by 2024’s end and 3% by the close of 2025.
A Closer Look at the Current Mortgage Rates
While the base rate is expected to remain steady for the next year, lenders are already accounting for future declines. This foresight is manifesting in their fixed-rate products. For a snapshot of the market situation, consider the average rates as of 3rd October, sourced from Rightmove:
- LTV 2-year fixed / 5-year fixed:
- 95%: 6.42% / 5.86%
- 85%: 6.13% / 5.58%
- 75%: 5.79% / 5.31%
- 60%: 5.61% / 5.07%
A significant point to note is that the purchasing power of borrowers is being amplified by a surge in earnings. Recent data from the ONS shows a growth rate in regular pay of 7.8% for certain periods this year – a historic high since 2001. When you factor in inflation, regular pay for May-July rose by 0.6% annually, with total pay (including bonuses) marking an increase of 1.2%.
What It All Means for You
Given the promising trajectory of rising wages, declining mortgage rates, and an easing cost-of-living situation, borrowers and consumers can anticipate some financial relief in the forthcoming months and years.
For those already locked into a fixed-rate mortgage, a conversation with a broker is highly recommended at least half a year before your deal concludes. Thanks to the Government’s Mortgage Charter, securing new rates half a year in advance is now possible. If you’re on the fence about buying or shifting homes due to potential financial constraints, engaging with a broker might reveal some pleasantly surprising options!