Reducing inflation is a major focus for the Bank of England and while it’s good news that it is no longer in double-digits, it isn’t falling as fast enough as the markets or economists had forecast. This has sent Swap rates, which underpin the pricing of fixed-rate mortgages, higher, resulting in rising mortgage rates and borrowers scrabbling around to secure a loan before the cost of borrowing increases further.
Forecasters can often get it wrong, and nowhere does this seem more the case than when it comes to house prices. Many predicted a significant drop in house prices this year, once the pandemic’s ‘race for space’ ended and the cost of living soared. And yet, the housing market continues to defy expectations. The Office for National Statistics reports that average prices are still rising on an annual basis, albeit at a slower rate. We take a look at the outlook for the housing market and discuss how we helped a client remortgage his home, finding a lender prepared to lend even though his business made a loss during Covid.
AWS Private Finance is a whole-of-market mortgage broker which searches the market to find the right deal for your circumstances, whether you are buying a new home or investment property, or refinancing. Get in touch for more information.
Market update: Disappointing inflation figures push mortgage rates higher
Despite 12 rate rises in successive Monetary Policy Committee meetings, taking interest rates to 4.5 per cent, it looks as though there may still be more on the way as inflation fails to fall as quickly as expected. Consumer price inflation (CPI) fell to 8.7 per cent in April from 10.1 per cent in March, a step in the right direction but still significantly above the Bank of England’s 2 per cent target.
It was somewhat surprising that Swaps rose sharply on the back of the news, given that inflation is coming down, but this was because the markets and economists had expected to see more of a drop. The Bank’s own projection of 8.4 per cent and economists’ forecasts of 8.2 per cent turned out to be lower than the reality, with inflation proving to be more stubborn than previously thought. It is unlikely to be enough to stave off another rate rise at the next meeting on 22 June, which is the traditional response to rising inflation.
The Bank also revised its forecast for the year, expecting inflation to drop to 5 per cent by the end of 2023, rather than the 4 per cent previously predicted.
Lenders had already started increasing their mortgage rates before the inflation figures were released on the back of rising Swaps. The inflation news, and subsequent further spike in Swaps, accelerated this trend with lenders including Nationwide announcing their decision to reprice. Some newspapers have even gone as far as to say that things are as bad as they were following the ill-fated mini-Budget in the autumn when fixed-rate mortgage pricing spiralled.
However, before borrowers start to panic, it is worth remembering that there are a few differences this time around. Then, lenders pulled rates and stayed out of the market while they waited to see what was going to happen. This time around, lenders who have pulled rates have repriced, admittedly higher, but have not pulled back on lending.
Borrowers who are coming to the end of their current deal or who need a new mortgage should seek advice; mortgages can be booked up to six months before you need them, depending on the lender, so if you are worried about rates rising further you can reserve one now for peace of mind. If, by the time you come to take out your mortgage, rates have fallen, you should be able to switch to another deal.
Other borrowers who need the certainty of a fixed rate are considering opting for a shorter term to obtain security and help with budgeting, in the hope that when they come to remortgage in a couple of years’ time, rates will be lower and they can then fix for longer at a better rate. Those who don’t need the certainty of a fix are considering taking out a variable rate with no early repayment charges so that they can switch onto a fixed rate once the pricing becomes more palatable to them.
It can be difficult to know what’s the best approach, so it is worth seeking mortgage advice from a whole-of-market broker such as AWS Private Finance. We will advise as to the best mortgage for your circumstances, whether you are buying a new home or investment property or remortgaging. Get in touch for more information.
