Mortgage rates are set to drop but please be patient
Hello, Happy New Year and welcome to my first advice column of 2024 about all things mortgages.
To kick off the year I wanted to give you an insight into the current mortgage world and how things are looking for the months and year ahead.
The good news is that mortgage rates are anticipated to experience a reduction in 2024.
The downward trend has been evident since autumn last year, with current average rates standing at 5.7 per cent for a typical two-year fixed mortgage and 5.3 per cent for a standard five-year fixed deal.
These figures reflect a notable decrease from 6.85 per cent and 6.37 per cent, respectively, from back in July last year.
A contributing factor to this trend has been the reduction in inflation over the past few months, currently sitting at 3.9 per cent.
While there is a potential for a slight increase in mortgage rates in Q1 of 2024, if inflation sees a slight upward trend, it’s expected that rates will continue to decrease slowly in the latter half of the year, in anticipation of a reduction in the Bank of England’s base rate at some point.
However, the expectation is that we might not commonly see mortgage deals under four per cent until the conclusion of 2024 or possibly even later.
Some lenders have popped up with sub-four per cent deals already this year for lower Loan to Value brackets, however these don’t tend to last long.
So, if you’ve been waiting for rates to reach this level before making a move on your first home purchase or remortgaging, it might be a prolonged wait. Consider the option of entering the market or switching deals earlier.
For prospective homebuyers, the current period could present a favourable opportunity due to reduced housing demand amid higher rates.
Although this might result in higher monthly repayments or opting for a more budget friendly property, the chances of being outbid by other buyers are diminished.
Some buyers are even successfully negotiating discounts ranging from five to 10 per cent off purchase prices.
If you’re a homeowner contemplating a remortgage onto a new deal, it’s advisable to explore current rates. If you’re within the six-month window before your existing deal expires, securing a rate now allows flexibility.
If you remortgage now and rates decline further, you can still reapply for a more favourable deal before it’s due to start, whilst locking in a lower rate provides a safety net if rates do take an upward turn.
There’s no certain way of knowing how it’s going to pan out over the next few months, even years, so making decisions on whether to buy a property or remortgage with a shorter or longer-term fixed rate means it’s more of a personal choice and needs tailored to your own plans for the short and medium term.
Remember that the actual interest rate is only one factor of how much you will pay for a mortgage, the level of borrowing and the term of your mortgage also has a direct impact on your monthly payments, so a tailored solution can sometimes mean the overall increase in rates isn’t as hard-hitting as you may think.
The great thing about using a mortgage broker to arrange any of the above is they will take the stress and hassle away from you when arranging the mortgage, deal with the lender directly on your behalf as well as advising you and providing a tailored solution specific to your circumstances.
■ The source for the rate figures used in the column is MoneyFacts.
It’s expected that rates will continue to decrease slowly in the latter half of the year, in anticipation of a reduction in the Bank of England’s base rate