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Antony Antoniou – Luxury Property Expert

Fixed rate mortgage below 4% announced

Fixed rate mortgage below 4% announced

UK Mortgage Rates Drop Below 4% – What Next?


Milestone mortgage rate offer signals turning point

This week marked a pivotal moment in the UK mortgage market – the arrival of the first mainstream lender to offer a 5-year fixed rate below 4%. Challenger lender Generation Home stunned many by launching a 5-year fix at 3.94% for a reasonable £999 fee.
I predicted we would see the initial sub-4% rate materialise before 2023 year-end. However, Generation Home has impressively delivered ahead of schedule. Moreover, this breakthrough could spark a price war among mortgage lenders in the coming months.
As context, Generation Home introduced an entire suite of new home loan rates, including:
– 2-year fixed mortgage at 5.04% with no fee
– 2-year fixed at 4.87% for a £999 fee
– 3-year fix at 5.02% fee-free
– 3-year fix at 4.92% for £999
– 5-year fix at 4% straight
My view is we’ll witness many other lenders swiftly follow suit next year with more sub-4% deals. What drove Generation Home to roll out such ultra-low rates right now?

Lenders respond to shrinking mortgage volumes

Quite simply, lender appetite to write new mortgage loans has drastically reduced lately. Each incremental Bank of England base rate hike is progressively strangling the housing market and wider economy.
Buyer demand continues falling off a cliff. Additionally, droves of existing borrowers remain paralysed by inflated mortgage payments after fixed terms ended.
  I’ve been explaining for a while that the economic situation and outlook are far gloomier than the rhetoric suggests. The scale of base rate rises was an inevitable, yet poorly calibrated, response to turbulent inflation this year.
 So lenders like Generation Home are strategically attempting to stimulate new borrowing demand with eye-catching super low fixed mortgage deals. They hope to entice both active buyers and beleaguered remortgagers.

What swap rate movements reveal

Surging swap rates dictate money markets anticipate far higher interest rates over 2, 3 and 5-year outlooks. This determines fixed mortgage pricing.
So for Generation Home to offer 5-year fixes below 4%, their analysts clearly believe base rates will average under 3.94% over the next half decade.
  Falling inflation bolsters the case for looser monetary policy next year. Inflation cooled quicker than the Bank of England projected last month. This piles pressure on them to carefully consider rate cut decisions, not just hikes.

The scene looks set for lower interest rates

Blanket base rate hikes have choked economic output far worse than anticipated. GDP is declining fast. Meanwhile inflation has moderated earlier than forecast.
 The unintended consequences of panic rate rises all at once are still washing through the financial system and impacting household finances.
   In my opinion, the Bank of England must inevitably reverse course at some point next year with interest rate cuts to resuscitate growth. Market swap rates suggest money markets agree cuts could come quicker than the consensus thinks.
  To me,spring/summer 2023 seems plausible timing for lower base rates to materialise, responding to a faltering economy.

Key takeaways – mortgage borrowers

While I wouldn’t assume interest rate cuts are guaranteed yet, the chances are rising by the month. So the tide is turning for hard-pressed mortgage holders.
  Borrowers unable to remortgage so far should seriously consider deals like Generation Home’s sub-4% fixes. Other tempting rates will likely launch imminently across the market too.
  Equally, those stuck on punitive default variable rates 6-9%+ after previous deals ended aren’t entirely trapped. Escape is finally visible as lenders price in base rate reductions.
  Undoubtedly the mortgage prisoners facing the toughest decisions are existing borrowers with lenders exploiting sky-high default rates to coerce acceptance of new fixes at 5-7%.
  This looks morally questionable to me, effectively holding loyal customers to ransom. Unfortunately some lenders seem happy to profiteer in this manner. Their conduct appears professionally dubious.
Moving forward – reasons for optimism
All in all, Generation Home’s landmark sub-4% arrival is fantastic early Christmas news for mortgage borrowers under pressure. It suggests the tide is turning on interest rates.
  2023 should bring expanding fixed rate choice at increasingly cheaper levels. Remortgaging at rates borrowers can sustain looks attainable once more.
  Of course global economic and political instability persists next year. Nothing is guaranteed. Still, UK mortgage holders have reasons for optimism amid the chaos. Their festive gift is light at the end of the rate rise tunnel!
I’m always available to help answer any reader questions on the latest developments in the mortgage and property markets. Please feel free to get in touch by phone, email or direct message.
Here’s wishing you a wonderful Christmas and prosperous 2023 ahead.
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