Will UK Mortgage Rates Continue to Fall?

The average rate for a two-year and five-year fixed mortgage has fallen slightly for the first time since May 29, giving borrowers hope that home loan rates may have peaked.

Currently, the average two-year fixed rate across all deposit sizes is 6.79 percent, down from yesterday’s average rate of 6.81 percent, according to MoneyFacts.

The five-year fixed average is now 6.31 percent, down from 6.33 percent.

Markets reacted positively to news that both the UK CPI and core inflation fell in June, after disappointing May data led to a series of sharp rate hikes, as lenders factor in the likelihood of further base rate hikes.

The measure of consumer price inflation fell to 7.9 percent in June, down from 8.7 percent in May, falling more than the market forecast of 8.2 percent.

As a result, interchange rates, the main pricing mechanism for mortgage rates, are expected to continue falling after falling slightly last week.

Despite the news, however, NatWest raised several of its fixed-rate products by as much as 0.4 percent for new business. All affected mortgages are for homebuyers or homeowners with 10 percent equity in the home.

However, Nick Mendes, mortgage technical manager at John Charcoal, says it’s hard to know why NatWest has raised its rates, but suggests it may be to maintain service levels.

For borrowers who need to re-mortgage in the coming months, the question is whether to close a deal now or wait to see if rates drop further.

So far, brokers say they haven’t seen lenders lower rates outright, though many suggest they now get some respite from the relentless pace of hikes in recent weeks.

While the cost of credit has now fallen marginally, lenders will be willing to play it safe and avoid getting caught out if costs rise again.

This means that they are unlikely to drop prices directly in line with interchange rates, and instead retain a margin that will keep prices around their current levels.

Rapidly changing mortgage rates in recent weeks have left brokers and borrowers struggling to catch their breath amid the chaos.

The market is still expecting the Bank of England to raise its base rate from its current level of 5 percent to around 6 percent by the end of the year, signaling that there may be more pain for borrowers.

Kirsty Wells, director of Blueprint Mortgages, said: ‘Lenders have still been emailing this week to report rate increases, so I think it’s too early to breathe a sigh of relief just yet.

“Sentiment may have improved but, at least for now, it has not translated into a price revision down from a large lender.”

Others agree, recommending that borrowers risk disappointment if they seek overnight reductions.

Phil Leivesley, sales manager at MB Assocaites, says: ‘Today it is reported that, according to Moneyfacts, the average 2 and 5 year fixed product is priced lower today than it was yesterday.

‘This must mean that some lenders have reduced their prices, or those offering above average products have withdrawn their products.

“However, unless the lenders offering the cheapest products on the market lower their rates, the vast majority of borrowers will not feel any benefit.”

Leivesley adds that he has been contacted by clients who expect the rates we have recently obtained to be immediately cheaper.

“We are hopeful that the outlook will improve, but it is important to remember that the price of fixed-rate mortgages is a complex issue and in the short term, the best expectation is that the cost of borrowing stops increasing and remains stable.”

If lenders cut rates to take advantage of falling swaps, the main mechanism used to price mortgages, borrowers who are about to leave their fixed rate can secure a cheaper deal.

Most lenders will allow you to lock in a new rate six months before the end of your current agreement. It means that if rates go up before your old contract is up, you’re protected.

If they continue to drop, you can hop back and forth to a cheaper one until your current fix comes to an end, meaning borrowers can get the best rate within the half-year window.

Kylie-Ann Gatecliffe, director of KAG Financial ‘Generation Home, was the first lender to send out a ‘we’re lowering our rates’ email last night.

“This is the first of its kind in weeks, so it’s a welcome change for brokers and their clients. Hopefully, we’ll see more lenders do the same in the coming days and weeks.’