Purely Financial – mortgage up-date

Company news :   24 - 09 - 24

To fix or not to fix, that is the question:

There is more than a shard of light at the end of what has, at times, felt like a very dark and long mortgage rate tunnel. Just 2 years ago, inflation peaked at 11% and the BoE moved quickly and decisively to try and control its damage with successive base rate rises for a year. Mortgage lenders didn’t know where it was going to quite end and priced accordingly with fixed rates going over 6% a little over 12 months ago.

Move that clock forward to today and we find a much calmer market. The BoE have made their first downward move in the base rate following 6 months of a holding pattern and more cuts are anticipated in 2025 and in to early 2026. Current predictions are for base rate to settle in and around 4%, maybe a little less. The BoE have long versed that they see a ‘neutral’ base rate to be around this level and that, if maintained, should keep a lid on inflation and keep it around their target figure of 2% pa and also control house price inflation, where we saw some property prices increasing by 5-10% pa when base rate was artificially forced down to fight off the credit squeeze of 2008 and then Covid. Year on year property growth at this level eventually weakens the foundations of the property market as prices become out of reach for the all important first-time buyers who underpin its stability. Forecasters are therefore expecting base rate to settle at a more traditional 4% or so which should have the required calming effect.

Somewhat surprisingly, given these forecasts and only one base rate cut so far, mortgage lenders have been aggressively been moving their interest rates down and fighting for market share. Despite base rate still being at 5%, fixed rates well under 4% are available if looking for longer term stability with a 5 year deal. 2 year fixed rates start at just over 4% (with a decent sized deposit) and even for those all important first-time buyers with a smaller 5 or 10% deposit, fixed rates are at 4.5% or so.

The question is, should we fix at these rates or is there lower to come? Of course, everyone’s circumstances are different and personal and its notoriously difficult to predict what actually plays out. An optimistic strategy would be to go for a tracker deal where you can follow those expected drops down and then catch what could be lower fixed rates in say 18 months time. However, all tracker rates start with a small margin over the base rate so the pay rate here will start at over 5% compared to the very best fixed rates at comfortably under 4%. Therefore, base rate would need to fall by well over 1% just to get to where todays fixed rates are starting. That’s quite a difference to pay for at a time when we’re all feeling the pinch of the last couple of years. If base rate does settle at around 4% or just under, will mortgage rates just settle at around the same number? if so, they are already there and may not get much cheaper even when we see those expected base rate cuts.

Regardless of how it all plays out, the world of mortgages is feeling a lot more positive than in recent times and that light is only seemingly going to get brighter over the next year or two.

If you would like to discuss your current or future mortgage options, pick up the phone to our friendly and knowledgeable team here at Purely or drop us a line.

We’re here for you when you need us.

Andrew Glover

Director