Mortgage rates to fall as housing market calms?

Categories: property market | base rate

The Governor of the Bank of England, Andrew Bailey has outlined his expectations of mortgage interest rates, now the market is calming.

Rates are based on a lender’s predictions of the market, which have been sporadic recently, due to changes in the UK government’s fiscal policies, the cost of living crisis and other factors. Lenders were fast to react and applied sharp increases to their mortgage rates.

Reassurance for landlord investors?

Bailey said that he “would hope the market is now calming” as things begin to settle and become easier to predict, and he expects this “should be reflected through into mortgage rates”.

In fact, Andrew Bailey has warned that interest rates will not rise as high as money markets are expecting, and even went so far as to caution mortgage lenders on their reaction:

“Based on where we stand today, we think [the] Bank rate will have to go up less than currently priced in financial markets and that's important because, for instance, it means the rates on new fixed term mortgages should not need to rise as they have done.”

CEO of commercial mortgage broker Commerical Trust, Andrew Turner concurs with Bailey’s comments:

“When Liz Truss and Kwasi Kwarteng were driving change, the market overreacted and a large amount of over-compensation was made with hikes in mortgage interest rates. With Rishi Sunak and Jeremy Hunt in situ now, everything is resettling and there is more confidence.

“As such, we do not expect more dramatic mortgage interest rate rises, off the back of the latest Base Rate announcement. Lenders were already forward planning in anticipation of it. In fact, we may even see rates being brought down, because the initial reaction was quite extreme.”

Further Base Rate increases?

On 3rd November, the Bank of England raised the base rate for the seventh time this year from 2.25% to 3%. Earlier predictions made in September didn’t anticipate the Base Rate reaching 3% until 2023 and anticipated a peak of 4%.

At Commercial Trust, Mr Turner sees this peak prediction still broadly in line with expectation, saying:

“We expect two further rises in the Base Rate, bringing us to 4-4.5 percent by February 2023.”

The next announcement will be on Thursday 15th December with the following one in the New Year on 2nd February 2023.

What this means for landlords

The message from mulitple directions is that, whilst the Base Rate may yet increase further, mortgage interest rates are more likely to hold and even resettle at a lower position.

Since the November Base Rate announcement, Commercial Trust has already seen several lenders reduce their fixed rates.

This doesn’t materially change the direction of travel. When fixed rates were down at 1%-2% they were almost inexplicably low, so it was inevitable that change would come. House prices have also been over-elevated for some time, so we expect those to ease back too.

In the short term, we have seen variable products offer more competitive rates than fixes, but look out for new buy to let mortgage deals as lenders reposition