After a year of turbulence mortgage rates are starting to fall – and it’s a full-on rate war. How do you ensure your mortgage benefits from the competition and can first-time buyers exploit the situation? We find out…
It’s a year since the infamous mini-budget which sent mortgage lenders into a spin and mortgage rates soaring.
Borrowers, who were already facing higher repayments to their mortgage thanks to consecutive interest rate rises, were at the sharp end of the financial fallout.
According to fee-free broker, L&C Mortgages, the average two-year fixed rate mortgage rose from 3.66% at the beginning of September 2022 to 5.24% at the start of October 2022 and then reached 5.90% when November dawned.
Anyone who was poised to remortgage or who was taking a new mortgage to purchase a home at the time faced not only a mortgage deal with higher repayments than they would have done just a few weeks before, but fewer deals from which to choose.
Since then further base rate rises and other economic events have driven average rates to peak at over 6% at one point.
But more recently a rate war has ensued. Lenders have been re-pricing their fixed rate mortgages and many are now offering some deals at below 5%.
This, coupled with the Bank of England’s decision to pause base rate rises last week, is offering hope that we may be over the worst of the so-called mortgage crisis.
‘Light at the end of the tunnel’
L&C would seem to agree. Whilst its data shows the average two-year fixed rate is now at 5.78% – not too far off the high in November 2022 – it remains optimistic.
Indeed, with more lenders cutting their rates – HSBC adding its name today to the list of top lenders cutting rates across its range – there is hope the chaos of the last year may be tailing off.
David Hollingworth, associate director of communications at L&C Mortgages, said: “After the false start of rates falling back in the early part of 2023 borrowers may now be able to look ahead with some more confidence, given the fact that fixed rates are falling and the hold in base rate signals that we’re close to, if not at, the peak.
“We’ve already seen improvements in fixed rates and that looks set to continue or even accelerate in light of improved inflation figures and a hold in interest rates. After a tough year there may now at least be some light at the end of the tunnel.”
How will rate cuts impact first-time buyers?
Tumbling rates also pose opportunities for first-time buyers but there is another influence which is helping them onto the first rung of the ladder.
High rates and new regulations on landlords have meant many are selling properties and this is providing less competition in the housing market.
Falling properties prices also mean it’s a buyers’ market. But for first-time buyers to benefit they will need to act quickly.
David Walsh, director at London-based broker, Kite Mortgages, explained falling borrowing costs and improved sentiment could see more buyers enter the fray, which would create more competition for first-time buyers.
“The UK property market is hugely sentiment-driven and, given that the narrative on interest rates has shifted fairly dramatically over the past week or so, there are likely to be more and more buyers coming back into the market.
“More buyers equals more competition, which can mean higher prices. With this in mind, I believe now is a good time for first-time buyers. Of course, the issue they may come up against, like all buyers, is a lack of stock.”
What to do if you are a first-time buyer keen to make your move?
If you are keen to take advantage of this window of opportunity, speak to a broker, who can advise you on your options and help you find the best deal from the many available.
Michelle Lawson, director – mortgage & protection adviser at Lawson Financial Ltd said lenders announcing rate cuts was a good reason to use a good broker who would review all the products available and ensure you get the lower rates offered.
“Lenders don’t do this if you go direct to them, even switching products,” she said. “Expect more of the same in the coming days. The rate war is now well and truly on.”
