March 29, 2023

Homeowners affected by rising mortgage rates have another ray of hope as the best five-year fixed-rate mortgage has dropped to 3.75 percent, but will rates continue to fall?

Last fall, the mini-budget wreaked havoc on the bond market and caused the cost of borrowing to rise sharply, directly affecting fixed mortgage rates.

No one was sure how long it would take for rates to fall, with most brokers and market experts expecting them to settle in the 4-5 percent range during 2022.

However, in early February we saw the first five-year fixed mortgages fall below 4% when HSBC and Virgin Money published rates of 3.99% and 3.95% respectively. This led to declarations of a ‘mortgage rate war’ by property commentators as lenders struggle to attract customers.

Now Platform, part of The Co-operative Bank, has announced five-year fixed rates starting at 3.75 percent effective Monday, February 20.

Mortgage rate war: Platform is the latest lender to lower its rates on a five-year fixed agreement to 3.75 percent effective Monday, February 20

Mortgage market watchers are now wondering if rates will continue to fall and fall back below 3.5 percent on five-year fixes.

Nicholas Mendes, technical manager of mortgages at broker John Charcol, said: ‘The platform has a history of disrupting the biggest banks in the market. Platform had one of the lowest five-year fixed rates on the market as of October 2021 at 0.79%.

“Not only has the platform’s pricing put the gauntlet on the five-year fixed price, but its two-year fixed rates hovering around 4 percent also offer an interesting proposition for homeowners, who may have felt that the longer-term fixed rates were their only option. option for a decent rate.’

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Will we see rates fall below 3.5% before the summer?

A good indicator of where mortgage rates are headed is to look at swap rates. Most lenders rely on exchange rates to price their mortgage products.

Swap rates are an agreement between banks in which they exchange a stream of future fixed interest payments for another stream of variable payments, based on a set price.

They tend to show where the markets think long-term mortgage rates are heading, and are factored into home loan pricing.

Graham Cox, director of Self employeemortgagehub, said: “With UK five-year swap rates currently sitting above 3.8 per cent, offers of 3.5 per cent may become available in a few months if the Bank of England signals its intention to lower the base rate.

“Assuming no more inflation shocks, the base rate could drop in late spring or early summer.”

The Bank of England is currently expected to raise its base rate for the last time this cycle to 4.25 percent next month, before lowering it later in the year if inflation continues to fall.

‘You will always tend to see lenders at the beginning of the year competing with each other to win business and try to hit their targets as soon as possible. The way rates are coming down on five-year fixed deals, I wouldn’t be surprised if we see rates as low as 3.5 percent from late March or early April,” says Gaurav Shukla, chief executive of mortgage broker Home Me. . .

“If we continue to see inflation come down and swap rates improve, we may well be in a position where five-year fixed rates are around 3 percent by the end of the year.”

However, other experts are not so sure that rates will continue to fall.

Natalie Hines, founder of broker Premier One Mortgages, said other lenders could follow Platform, but most will keep rates steady.

“While I expect to see the five-year fixed rates drop to 3.5 percent, it will be a guess how low they will be, and for how long,” Mendes said.

“With the downturn in the real estate market and completions expected to be lower than in previous years, we could see an exciting opportunity presenting itself for homeowners as lenders try to grab a piece of limited market space by attracting and retain new business.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate agreement is coming to an end, or because they have agreed to purchase a home, should explore their options as soon as possible.

This is Money’s best mortgage rate calculator, powered by L&C, it can show you offers that match your mortgage and property value.

What if I need to re-mortgage?

Borrowers should shop around for rates, talk to a mortgage broker, and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a new house?

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Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching themselves and be prepared for the possibility of lower home prices, as higher mortgage rates limit people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for

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