When will mortgage rates come down?
Jeni Browne of MFB (Mortgage Finance Brokers) has agreed to update us on the world of mortgages each month and this month, she starts with the question everyone seems to want to know the answer to – when will rates come down?
When we talk about mortgage rates, we are really talking about two different rates – the Bank of England Base Rate, and SWAP rates. SWAP rates are the rate which financial institutions charge each other interest, on a fixed rate basis, and thus determine the cost of fixed rate mortgages – these are calculated, essentially, using a best guess, of what the Bank of England Base Rate will be doing over the period of the fixed rate. Clear as mud?
So when Base Rate is expected to go up, SWAP rates will increase, and if base rate is expected to go down, SWAP rates will stay level or even reduce. It's the latter that we are hoping to see imminently.
With that explanation out of the way, how is the future looking? At the last MPC (that's the abbreviation for the Bank of England's Monetary Policy Committee) meeting, 2 of the 9 members voted to reduce rates. The current predictions are split as to whether we will see a reduction in August – its going to be a tough decision. The headline rate of inflation is back down to 2% BUT underlying inflationary pressure is stubbornly high plus there is an expected increase in fuel costs this Autumn. The current odds are at 40% in favour of a rate cut in August. If we don't see a cut then, but if headline inflation behaves itself, if services inflation steps down from its disconcertingly high 5.7% and if wage growth cools a bit, then we may well see the first cut in September. You will note that there are a lot of 'ifs' in there, because it really is just that kind of market just now.
In terms of fixed rates, we have seen lenders making reductions over the last few weeks – nothing exciting at around 0.15% off their pricing – but welcome, nonetheless. SWAP rates have not really moved for several weeks which will be down to a combination of uncertainty over Base Rate (see above), the summer period, the election, geo-political woes…. The list goes on. Until we see a step down in SWAP rates, you won't see a step down in fixed rates. At MFB we are expecting some movement in September.
For those of you who are in need of a mortgage, a useful measure we employ for our clients, is to apply for a mortgage and then continuously review those lenders rates, right up until completion – if their rates have come down, we move the client onto the new lower one. This means that for those who have a mortgage rate ending, or a purchase to complete on, you can get your mortgage application underway, know that the rate you have applied for is the 'worst case scenario' and that if rates do come down, you can also benefit from this.
If you would like to get in touch to discuss your mortgage needs, we would love to hear from you – 0345 345 6788 www.mfbrokers.co.uk