Mortgage rates may stop rising now

Have Mortgage Rates Hit Their Peak? A Look at the Current Landscape

In the world of real estate and finance, mortgage rates have been a hot topic of conversation for quite some time now. Ever since the Bank of England base rate began its rollercoaster journey around the middle of last year, homeowners and potential buyers have been closely monitoring the trajectory of mortgage interest rates. After enjoying historic lows for nearly a decade, the burning question on everyone’s mind is, “Have mortgage rates peaked?”

A Trip Down Memory Lane

Let’s rewind a bit to early 2015 when the average two-year fixed mortgage rate dipped below the 2% mark, and the average five-year fixed rate fell below 3%. Borrowers were thrilled with the prospects of affordable financing, and it seemed like the good times would never end. Fast forward to the autumn of 2021, and we saw two-year fixed mortgages averaging just 1.2%, with some lucky borrowers securing rates below 1%. Meanwhile, the average five-year fixed rate dropped to less than 1.3%.

But as we ventured into December 2021, the winds of change began to blow. The Bank of England base rate, which had hit an all-time low of 0.1%, started inching upwards, and mortgage interest rates followed suit, as is customary. Some mortgage rates even spiked to over 6% following a turbulent mini-budget by the Conservatives last September. However, they began to recede once Rishi Sunak took the helm.

By the time 2023 rolled around, the average two-year fixed mortgage rate had crept up to just under 5.8%, while the Bank Rate stood at 3.5%, with experts predicting further increases before summer’s end.

The 2023 Mortgage Rate Rollercoaster

So, what’s been happening with mortgage interest rates in 2023?

At the start of the year, despite the Bank Rate’s ascent and stubbornly high inflation, mortgage rates continued their steady descent from the peak they hit in November 2022. February saw two and five-year fixed rates at 5.44% and 5.2%, respectively, followed by further reductions to 5.32% and 5% in March.

But come May, as repeated base rate hikes failed to tame inflation’s ferocity, lenders had a change of heart. In mid-June, the average two-year fixed mortgage rate ascended to over 6%, causing concern among potential homebuyers and homeowners looking to refinance.

A Glimmer of Hope

While the average rate tells one story, there’s a silver lining to this tumultuous narrative. Individual mortgage rates have started to descend again, primarily due to substantial declines in inflation. Economists now expect inflation to recede to 5% by year-end and eventually reach the 2% target by early 2025.

In July, HSBC became the first high street lender to announce rate cuts on its fixed-rate products. Notably, other major lenders, including Nationwide, Barclays, and Virgin Money, followed suit over the next month. As of September, first-time buyers can access five-year fixed rates well below 6%, with two or three-year fixed products slightly above that threshold.

Unusual Trends

One unusual trend worth noting is that five-year rates are currently lower than two-year rates. This deviation from the norm suggests that lenders may anticipate a significant future drop in the base rate. Despite witnessing a 14th consecutive rate hike at the start of August, which brought it to 5.25%, we’ve experienced the first freeze in 15 months as of September 21. Some experts had previously predicted that rates would peak at 5.5%, but it seems that may never come to pass. This could potentially be a harbinger of further declines in mortgage rates, offering a ray of hope for borrowers.

The Role of Mortgage Brokers

Given the complexity of the mortgage market and the numerous variables at play, if you’re considering buying a home or need to refinance in the coming year, it’s prudent to consult a mortgage broker sooner rather than later. It’s advisable to allow at least six months to navigate the remortgage process smoothly. Delays can occur if essential documents are missing, so gather all necessary information and provide it promptly to expedite the application process.

In conclusion, while the mortgage rate journey has been anything but smooth in recent years, there are signs that rates may be stabilizing and even decreasing. Borrowers should remain vigilant, keep an eye on the latest developments, and seek professional advice to secure the best possible mortgage deal in this ever-changing landscape.