Mortgage market shows signs of stabilising

Mortgage product choice increases as nearly 900 deals are added, while mortgage rates could ease as the market shows signs of stabilising. At Anthony Pepe, we’re an expert Highbury estate agent. Here, we break down what these trends mean for the property market and prospective buyers and sellers.

Key Takeaways

• After hitting a low of just 2,258 different deals in the first weekend of October (2022), availability has increased to 3,128 products now (late Oct/early Nov 2022).
• Tracker rates have started to look good value again, with interest on the average two-year product standing at 3.71% (at time of writing).
• The average cost of a two-year fixed rate deal has soared to 6.65%, while the typical interest rate charged on a five-year fixed rate product is 6.51% (at time of writing).

Mortgage Rates Hit 14-Year Highs, Product Choice Recovers

Mortgage rates have hit a 14-year high in the wake of the chaos caused by the Mini-Budget.

The average cost of a two-year fixed rate deal has soared to 6.65%, while the typical interest rate charged on a five-year fixed rate product is 6.51%, according to the financial information group Moneyfacts.

The rates on both deals are the highest since 2008, and significantly above the 4.24% and 4.33% that two-year fixed rate and five-year fixed rate deals respectively stood at in early September (2022).

But the total number of products available to choose from has stabilised in recent days as lenders relaunch their ranges.

After hitting a low of just 2,258 different deals in the first weekend of October (2022), availability has increased to 3,128 products now (late Oct/early Nov 2022).

There are hopes that the market will stabilise further, and mortgage rates could drop slightly following the resignations of both former Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng.

Why is this happening?

The cost of fixed rate mortgages has been on an upward trend since the beginning of the year (2022), when it became clear the Bank of England would have to increase interest rates significantly to get high inflation back down to its 2% target.

But the mortgage market became highly volatile following the former Chancellor’s Mini-Budget in late September (2022).

The unfunded tax cuts and the cost of the energy price guarantee spooked markets, leading to a steep increase in the cost of government borrowing – known as gilt yields.

Gilt yields influence the price of Swap rates – which is the cost lenders pay to borrow money for fixed rate mortgage deals.

The good news is that following the resignations of Truss and the reversal of many of the measures announced in the mini-Budget, gilt yields have fallen slightly.

It is hoped that they will fall further as political stability is restored, enabling lenders to reduce the interest they charge on fixed rate mortgages.

What should I do now?

The current situation is difficult for people who need to remortgage.

Anyone who takes out a fixed rate mortgage now (late 2022) will be locking into the current high rates for two to five years.

What type of mortgages are there?

While the cost of fixed rate deals may come down slightly as gilt yields fall, there is no guarantee that this drop will be passed on by lenders.

Meanwhile, with inflation remaining above 10%, the Bank of England’s Monetary Policy Committee is widely expected to raise interest rates when it meets in early November (2022).

Some economists are predicting it could increase them by as much as 1% to 3.25%.

It is important to factor in the impact of future interest rate rises when deciding what to do.

At 5.63%, the typical standard variable rate – the rate borrowers are automatically moved to when their existing deal ends – is lower than both two-year and five-year fixed rate mortgages (at time of writing).

But, if the MPC does increase rates by 1% in November (2022), and lenders pass this on in full to customers on their standard variable rate, it will be on a par with fixed rate deals.

Meanwhile, tracker rates have started to look good value again, with interest on the average two-year product standing at 3.71%.

But it is important to remember that the rates charged on tracker mortgages automatically move up and down in line with changes to the Bank of England base rate.

Economists are predicting the Bank Rate could peak at 5% next year (referring to 2023).

If this happens, a tracker rate of 3.71% now would rise to 6.46%.

For many borrowers the decision is likely to come down to whether they want the security that their monthly repayments won’t change with a fixed rate mortgage, or whether they are happy to risk interest rates peaking at 5% and opt for a tracker deal.

What’s the background?

With the mortgage market in such a state of flux, it may be a good idea to consult a mortgage broker, who can help you find the deal that is best for you.

Whatever you decide to do, you are likely to need to move quickly.

The final three months of the year is traditionally a busy time for remortgaging, and this year (2022) is likely to be even busier than usual, as homeowners scramble to remortgage before interest rates rise further.

The situation has recently led to lenders withdrawing mortgages in order to maintain their service standards, after receiving high levels of applications.

As a result, good deals are unlikely to be around for long.

Anthony Pepe – a Highbury Estate Agent

If you are looking for houses for sale in Cockfosters, Highbury and throughout North London, we are the local estate agent of choice.

For more details of the services that we can offer you, follow this link.

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Source: Zoopla