If inflation follows expectations and falls this should lead to interest rates stabilising and potentially even dropping, and mortgages following suit, said Quilter.
And this could mean mortgage rates fall to 4% by the end of the year and possibly even lower in future, said Karen Noye, Quilter’s mortgage expert.
She added: “[This] will have a real impact on monthly mortgage costs, particularly for those on variable rate mortgages, and could see more people considering buying a new home as the prospect becomes more affordable.”
How high have mortgage repayments increased in 2022?
The new analysis also revealed average mortgage payments had increased by 66% in the last year.
Indeed, those who purchased a property at £294,910 – the average UK house price according to the latest government data – at a mortgage rate of 6%, which was the average in November, would be facing a monthly repayment of £1,520.
This is a 66% hike on the £918 monthly payment for the equivalent property and mortgage deal a year earlier, said Quilter, which based the calculation on an 80% loan-to-value mortgage with a term of 25 years.
Noye added: “Inflation is still incredibly high and people’s buying power has taken a real hit as a result, particularly with rising energy bills, but thankfully we look to now be moving past the peak.
“Lower inflation should mean interest rates stabilise and even start to drop with mortgage rates following suit.
“This could result in mortgage rates dropping to 4% by the end of the year and potentially even lower in the future which will have a real impact on monthly mortgage costs, particularly for those on variable rate mortgages, and could see more people considering buying a new home as the prospect becomes more affordable.
“The last few years have shown just how unpredictable the housing market really is, but with hope we are now out the other side of what has been a hugely turbulent few years and we will gradually see a levelling out in terms of rising costs.”
Sub-4% mortgage rates are closer than we think
The average rate on a two-year fixed rate mortgage is currently 5.53% according to Moneyfacts.co.uk. Whilst Noye thought we may have to wait till the end of 2023 for 4% rates to materialise, others think it might happen sooner.
Craig Fish, managing director at mortgage broker Lodestone said: “I think we are only a matter of weeks away from fixed rates going below 4%.
“We have some 10-year fixed rate products currently hovering just over 4%, and it seems the competition may be hotting up in this area, with lenders looking to tie clients into longer term contracts because right now they are all vying for business.
“However, historically the British have never been that keen on longer-term fixed rates. We are, it seems, wary of the commitment and would rather have the flexibility of the two and five-year fixes. I would think that these options will drop below 4% also, but during the summer months.”
Kylie-Ann Gatecliffe, director at Selby-based broker, KAG Financial agreed. She said: “Currently, the best fixed rates are sat at just under 4.5% but I can see sub-4% rates making a comeback.”
She added: “I predict that they will have fallen below 4% by March. As the sunshine returns, I hope we see interest rates start to thaw, providing comfort to those buyers that have been waiting for the market to improve.”
If you are waiting for rates to drop before making a move to remortage or purchase a property, it is advisable to seek guidance from a broker or adviser.
‘Don’t get fixated by rates’
Jonathan Burridge, founding adviser at hybrid mortgage adviser, We Are Money said: “What we have learned from the past 12 months is that every prediction is a guess. It is very conceivable we will see two-year rates hit 3.99%, but do not hold out on the wish they will be.
Start talking about your new mortgage needs six months before your current deal ends, and make sure you know what you want and what you can afford. Focus on the monthly payment and let the adviser give you options.
“Don’t get fixated on fixed rates. Of course, your mortgage is important but pricing is out of your (and your adviser’s) control. All they can do is give you a recommendation that best suits your needs.”
