Year: 2023

There is finally light at the end of the tunnel for beleaguered homeowners, as a dramatic drop in inflation announced last week could spell the end of mortgage rate misery.

Annual inflation fell to 4.6 per cent in October from 6.7 per cent in September, surprising investors and the Bank of England.

Over the past year, the Bank’s bid to harness soaring inflation with an aggressive series of interest rate rises has driven mortgages to sky-high rates. This has added thousands of pounds to the average homeowner’s annual mortgage costs, with millions refixing facing a shock.

Some 7.5 million households are expected to have been affected by the rate rises. But with inflation slowing, have we seen the worst of high rates and could mortgage costs fall back?

Mortgage rates to fall below 4 per cent

The drop in inflation could mark a watershed in the battle against the spiralling cost of living, which saw inflation peak at 11.1 per cent last autumn. With inflation forecast to continue to fall this removes the main reason driving the Bank of England’s base rate hikes.

The base rate could be cut as soon as May and fall to 4.25 per cent by the end of next year, analysts at Morgan Stanley forecast. Earlier this month, the Bank of England’s chief economist Huw Pill had predicted the first cut would be in August. The Bank ended its run of rises in September, holding rates at 5.25 per cent.

Lenders reacted to last week’s news with a flurry of cuts. Banks have reduced mortgage rates over the past two months, but the pace has increased in recent days.

On Thursday, Barclays reduced the cost of its two-year fixed-rate deals for homeowners by 0.3 of a percentage point. Homeowners with a 40 per cent stake in their property can now secure a two-year deal at 4.98 per cent with a £999 fee. On Tuesday, First Direct cut its rates by up to 0.4 of a percentage point. HSBC announced cuts of up to 0.35 of a percentage point on residential and buy-to-let mortgages on Wednesday.

David Hollingworth, broker at L&C, says: ‘We’re already seeing some cuts and that will carry on to the end of the year and into next.’ He expects five-year fixed-rate mortgages to hit 4.5 per cent in the coming weeks, a huge relief to homeowners. Someone on a five-year deal would pay £12,534 less fixing at 4 per cent instead of this year’s high of 6.37 per cent. This assumes a mortgage balance of £150,000 paid over 25 years.

But homeowners coming off a fixed rate deal agreed a few years ago will still be in for a shock when they remortgage, as rates remain far higher than in recent years and are likely to stay elevated.

Lennox wants to see an improvement in remortgage deals as existing homeowners tend to fare worse than prospective buyers. He says rates on remortgage applications are still typically 0.2 to 0.3 of a percentage point higher than for first-time buyers. Those looking to change lender also face more stringent affordability checks, which could force them to stick with their existing lender.

He also warns that lenders might raise their product fee if rates fall. These are around £999, but Lennox says £2,000 could be more common as rates continue to plummet.

Respite at last for landlords

Falling inflation offers new hope for landlords considering selling their buy-to-let investments to leave the market. In 2022, landlords sold more than 200,000 properties as they battled a tidal wave of high mortgage costs, higher taxes and uncertainty around new legislation.

Andrew Montlake, at Coreco Mortgages, says: ‘Buy-to-let will get some respite. It will make it easier for landlords to meet affordability levels.’

Buy-to-let mortgages attract higher interest rates and require larger deposits than residential mortgages. The average two-year fixed-rate buy-to-let deal peaked at 6.97 per cent in July, according to rates analyst MoneyfactsCompare.

Should you hold out for a lower rate?

With fixed-rate deals expected to improve, many may be tempted to hold out and delay locking into a new rate in the hope that they fall rapidly. However, broker David Hollingworth warns not to leave it too long.

He says: ‘Homeowners could leave it so long they drift on to a high standard variable rate. And, you never know, something could come along that derails the current improvement.’ More people are opting for two-year rather than five-year fixes in the hope rates will continue to fall and they can then refix at a lower rate.

Source: Lucy Evans, This is Money

If you’re thinking of taking out a mortgage, or you’re coming to the end of your existing fixed-rate product, you’ll know there’s been a lot in the news about mortgage rates recently.

Over the course of a mortgage term, it’s likely you’ll be able to select different mortgage types, and different deals, in order to make sure you’re paying your mortgage off in the way that works best for your circumstances.

At the moment, most people taking out mortgages do so on fixed rates: 96% of people buying homes, or remortgaging in the last three months of 2022, opted for a fixed-rate mortgage.

Lenders set their own mortgage rates, and how high or low they are is significantly influenced by the Bank of England’s Base Rate, as well as the financial market’s perception of where Base Rate will be in the coming years. If you’re looking for the lowest priced fixed rate mortgage, this will largely be dependent on what’s going on in the wider economy, and what’s likely to happen in the future. Traditionally, this would have been a 2-year fixed deal, but this changed in 2022, and since then, 5 year products have been cheaper.

The most common fixed rate mortgages are for 2 and 5 years, but you’ll also find lenders offering other time periods, including 3 years, or as long as 10-year fixed terms. But how do you work out what might be the right option for you?

What’s the difference between 2 and 5-year fixed rate mortgages?

In simple terms, a 2-year fixed rate mortgage will lock you into a fixed interest rate for 2 years, while a 5-year deal, unsurprisingly, locks you into that rate for 5 years. This rate is guaranteed, regardless of what’s happening elsewhere in the economy, including any changes made to the Bank of England’s Base Rate.

Why are the interest rates on 2 and 5-year deals different?

When a lender offers you an interest rate on your mortgage, they’ll take into account what the mortgage is likely to cost them over the course of your mortgage deal. To calculate this, they use swap rates (the underlying cost of mortgages to lenders) which are the market’s view of the direction of Base Rate.

In recent years, interest rates have been ultra-low. And 5-year mortgages have usually had higher interest rates than their 2-year counterparts.

But as interest rates started to rise throughout 2022 and 2023, we saw 2-year fixed deals become more expensive. And since the end of 2022, 2-year deals have had higher interest rates, which ultimately means you’ll pay more per month for a 2-year deal. This is because the markets have been – and still are – of the view that interest rates will drop from their current level in the coming years. And lenders have baked this into their longer-term pricing of mortgage deals.

Advantages of a 2-year fixed mortgage

Your monthly payments will be fixed for two years, so you’ll have certainty in what your monthly payments are going to be throughout this period.

The expectations of the financial markets is that interest rates are either at their peak, or are set to reach their peak soon. After which, Base Rate is predicted to stay flat for a sustained period, before falling back, with mortgage rates also following this pattern.

So you might find that by the time you need to remortgage, the new mortgage deal you’re offered could be considerably less than what borrowers are being offered today, although rates are very unlikely to fall back to ultra-low rates of recent years.

Disadvantages of a 2-year fixed rate mortgage

Right now, 2-year deals are more expensive than 5-year deals. In September 2023, the gap between 2 and 5-year deals was around 0.5%. So, while you might be able to access a cheaper mortgage rate after your 2-year deal is up, right now you’ll pay more per month by opting for this length of fixed rate.

Advantages of a 5-year fixed rate mortgage

Though mortgage rates are significantly higher in 2023 than they’ve been over the last 15 years, if you’ve been offered a 5-year fixed rate mortgage deal and you’re comfortable with the repayments, you can be comfortable in the knowledge that your monthly repayments are locked in at the same amount for the next 5 years. So even if interest rates rise during that time, it won’t affect your monthly repayments.

Right now, 5-year deals are cheaper than 2-year fixed-rate mortgages, so you’ll currently see lower monthly repayments by opting for a 5-year deal.

Disadvantages of a 5-year fixed rate mortgage

You’re locked into this mortgage rate for a longer period, so if interest rates do happen to drop, you wouldn’t be able to take advantage of lower rates on offer, until you were either in a position to remortgage, or willing to cover the – often hefty – fees that come with leaving your mortgage deal early.

Is it better to get a 2 or 5-year fixed rate mortgage right now?

Traditionally, those taking out a mortgage will opt for the fixed deal with the lowest interest rate associated with it, as this ultimately leads to lower monthly repayments. But remember, it’s important to speak to a mortgage broker if you’re thinking about taking out a mortgage right now, as they’ll be best placed to guide you through the process.

Right now, 5-year fixed rates have lower rates than their 2-year counterparts. In fact, throughout 2023, the gap between 5 and 2-year mortgage rates has grown. At the moment, a 5-year fixed rate is roughly 0.5% lower than a 2-year fixed rate on average. And in real terms, this means you could expect to pay around £27 less per month for every £100,000 you have left on your mortgage by taking out a 5-year fixed rate.

Are tracker mortgages a good option right now?

Tracker mortgages do just that: they ‘track’ the Base Rate and follow its trajectory. So any future reductions to Base Rate will mean people on tracker mortgages can take advantage of cheaper rates in real time.

Market expectations are that Base Rate is either at or nearing its peak, and will remain flat throughout 2024, before starting to drop. History has shown us that when Base Rate begins to drop, tracker mortgages become more appealing to people, because they can instantly start to see the benefits of interest rate reductions, in the form of lower monthly payments. And as a general rule, for every 1% change to the Base Rate, your monthly mortgage payments will be adjusted by £54 a month on average, for every £100,000 left on your outstanding balance.

RISK: The information and opinions provided in this article is not intended to be financial advice and should not be relied upon when making financial decisions. Please seek advice from a specialist mortgage provider.

Source: Rightmove Property News 18^th October 2023

Homeowners with mortgages have seen their monthly repayments skyrocket in line with interest rate rises, with mortgage rates increasing to more than 6% for both two- and five-year fixed-rate deals in recent weeks. But the unexpected drop in inflation last week, and the pause in base rate hikes has allowed for better rate options to enter the property market.

Mortgage holders and homebuyers have received a fresh boost over the past few days as lenders have continued reducing rates – with some fixed deals now available below 5%.

Following the Bank of England’s decision to halt interest rate hikes last week – holding the base rate at 5.25% – several lenders, including NatWest, TSB, Nationwide and Virgin Money have reduced mortgage rates.

Some began cutting rates after the shock fall in inflation to 6.7% was announced last Wednesday, signalling an end to the need for more aggressive action by the Bank of England.

Lucian Cook, head of residential research for Savills, commented: “The inflation numbers should bring more economic certainty and confidence to lenders. This will give a further boost to competitive pricing in the mortgage markets and help buyers reliant on borrowing better compete with the cash buyers.”

Experts believe five-year rates will see the biggest fall in rates although two-year fixes will also come down.

Nick Mendes of brokers John Charcol said: “I wouldn’t be surprised if we see rates of 4.5% now for five-year fixes in October.”

David Hollingworth, of brokers L&C, added: “There is evidence that the market received inflation news positively and that should feed through to lower mortgage rates. I think it will give extra momentum to fixed rates coming down.”

SOURCE

Marc Da Silva | Property Industry Eye

 

         Will the Bank of England raise interest rates again this year?

 

•          Bank of England held the base rate at 5.25% after a surprise drop in inflation
•          Some economists believe interest rates have now peaked

The Bank of England has pressed pause on its rate hiking cycle, signalling its job might nearly be done after a surprise fall in the headline inflation rate. The Monetary Policy Committee voted to hold rates at 5.25 per cent, the first pause in nearly two years. Earlier this week, markets were confident the central bank would raise rates, but a cooler-than-expected inflation reading prompted speculation we could be near the end of the hiking cycle. The decision brings the BoE in line with its peers the ECB and the Federal Reserve, which held rates in its meeting on Wednesday but did not rule out further rises.

Today’s decision signifies the BoE could be nearing the end of its tightening cycle. So have we reached the peak, or could we be in store for further rate rises?

 

Why did the Bank of England hold the base rate?

 Even before today’s decision, the Monetary Policy Committee had indicated we could be nearing the peak of the rate hiking cycle. Earlier this month, Andrew Bailey told the Treasury Select Committee: ‘I think we are much nearer now to the top of the cycle.’ He also expressed concern that if the bank hikes too far, then it might need to cut too quickly.

The MPC was split, with five members voting to hold rates while the remaining four voted to raise the base rate to 5.5 per cent. August’s inflation reading seems to have been the decisive factor in holding rates at 5.25 per cent, although the members who voted to hold also pointed to signs that the labour market is loosening. The majority judged that the greater risk is overtightening, before the full effect of previous interest rates has filtered through.

The MPC’s report, published alongside the base rate decision, said: ‘For most members within this group, the latest developments meant that the judgment to keep bank rate unchanged at this meeting rather than increase it was finely balanced.’

‘Given the significant increase in bank rate since the start of this tightening cycle, the current monetary policy stance was restrictive.

‘This meant that the decision on whether to increase or to maintain bank rate at this meeting had become more finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could still prove persistent, and not placing sufficient weight on the impact of the previous tightening that was still to come through on activity and inflation.’

When the bank raises its rate, it can take up to two years for it to have a full effect on the economy. According to the committee, this lag in policy meant that ‘sizeable impacts from past increases were still to come through.’

Could there be another base rate rise this year?

The BoE’s neutral language and references to a ‘finely balanced’ decision suggest it won’t be a hard stop for interest rate rises just yet.

In his letter to the Chancellor, Andrew Bailey said: ‘There is absolutely no room for complacency. I can assure you that the MPC will stay the course and keep monetary policy sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target in the medium term.’ Inflation still remains three times the level of the Bank’s long-term two per cent inflation target. The near-even split of its committee members in itself suggests another pause in November is not a given. The monetary policy lag means the Bank could be taking a ‘wait and see’ approach to see how previous rate rises have filtered through to the economy before the end of the year. It will also be looking at September and October’s inflation readings. Should core inflation start to rise again, it may take the decision to increase the base rate. The Bank said: ‘CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation.

‘Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.’

Bailey added: ‘Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target sustainably in the medium term. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’

Paul Dales, chief UK economist at Capital Economics thinks this careful language is about the Bank wanting the markets to believe in the ‘high for long’ narrative.

‘The Bank doesn’t want the markets to conclude that a peak in rates will be quickly followed by a pivot to rate cuts, which would loosen financial conditions and undermine its attempts to quash inflation.

‘The language also gives the Bank the flexibility to respond to new developments.’

While the Bank may not be giving much away, some analysts believe that this will be the last rate hike in this cycle.

Both Dales and Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believe interest rates have peaked at 5.25 per cent, rather than previous forecasts of 5.5 per cent.

‘With surveys pointing to a further increase in labour market slack, a slight slowdown in wage growth and lower CPI inflation by year-end, the case for hiking again likely won’t be stronger in November or December than today,’ said Tombs.

‘Accordingly, we now think that 5.25 per cent will be the peak level of bank rate in this hiking cycle.’

Dales said: ‘We think rates will stay at this peak of 5.25 per cent for longer than the Fed, the ECB and investors expect, but that when rates are cut in late 2024 they will be reduced further and faster than widely expected.’

By ANGHARAD CARRICK

21 September 2023

The charter is intended to help millions of homeowners who are facing a huge jump in monthly mortgage repayments because of rising interest rates after the Bank of England upped rates to 5% last month

The help comes through the “Mortgage Charter” which is a set of measures the majority of mortgage lenders have signed up to.

The charter – agreed between the Government, principal mortgage lenders and the Financial Conduct Authority (FCA) – has been signed by over 40 lenders including Barclays, Nat West, Lloyds, Halifax and many others.

However, you should be aware that this particular mortgage support does not cover those with a buy-to-let mortgage.

Firstly, from July 10^th, mortgage holders can switch their mortgage deal to an interest-only plan for up to six months.

This will temporarily bring down the monthly payments and they can switch back to their original deal with no impact to their credit score.

Mortgage holders will also be able to extend the length of their term.

As well as this, customers approaching the end of a fixed-rate deal will have the chance to lock in a new deal up to six months ahead.

They will also be able to manage their new deal and request a better like-for-like deal with their lender right up until their new term starts if one is available.

This means if you lock in a rate now in July, that rate will be honoured until your mortgage renews in January.

If a new deal comes and it’s better than the one you have locked in then you will be able to switch to it with no issue.

While this has often been offered by some lenders in the past, it is now a firm commitment from lenders signed up to the charter.

Of course, switching the terms of your mortgage can have impacts on how much you end up paying overall – so always speak to a mortgage broker first before making any big decisions.

For example, switching to interest-only reduces your monthly repayments but does mean you don’t actually pay off the capital you own.

Extending the length of your mortgage means you’ll take longer to pay it off and you’ll likely pay more interest over time.

Alongside this, lenders will need to provide “well-timed information” to help customers plan ahead when their current rate is due to end.

Some elements of the charter came into effect last month with borrowers not allowed to have their homes repossessed within 12 months of their first missed mortgage payment.

Homeowners can also approach their lenders for advice on repayments without impacting their credit score.

You should also be aware that you’ll need to be up to date with your repayments to be eligible for the help, as it doesn’t apply to those who have already fallen behind on their mortgage payments.

What to do if you need a mortgage

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

What if I need to remortgage?

Anyone with a fixed rate deal ending within the next six, should look into how much it would cost them to remortgage now – and consider locking into a new deal.

Most mortgage deals allow fees to be added to the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home?

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

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to speak us.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to us as soon as possible, so we can help you find the right mortgage for you.

Source:Ruby Flanagan – Money Reporter

Fran Evans – This is Money

It’s not a great time for mortgage holders. The Bank of England raised the base rate by 0.5 percentage points to 5 per cent last week, and the core inflation figures recently published suggest the economic troubles aren’t going away quickly.

So if you’re feeling worried about your mortgage right now, you’re not alone. There are things that can be done, however, so here are five practical suggestions to help ease the panic.

You can extend your mortgage term

If you extend your mortgage term, it will lower your monthly repayments. The downside of this strategy is that you will have a mortgage to pay for a longer period of time, and that could cost you more in interest.

On the other hand, if interest rates come down at any point over the next few years, you may be able to remortgage onto a lower rate at that point. Potentially, if your financial circumstances have improved sufficiently by then, you could look at reducing your term back down again.

You can book a new rate six months ahead

If your current cheap deal is coming to an end this year and you are worried about rates rising further, you can lock in a new fixed rate deal now. This is because most mortgage deals can be booked six months in advance.

The good news is that, if between now and your current deal coming to an end rates do start to come down, you can change your mind about which deal you want to remortgage to. So you’ll get peace of mind now, knowing you’ve got a fixed rate that protects you against further rises. But equally, if rates do start to come down, you can look to change the product you’ve booked if a better deal does appear.

You can shop around for the cheapest deal

Although the average two-year fixed rate is 6.15 per cent and the average five-year fixed rate is 5.79 per cent, you may be able to find a market-leading fixed rate for 5 per cent or less, if you speak to a broker. This is particularly the case if your loan-to-value (LTV) – which is essentially the proportion of the overall cost of the property that the bank is lending on – is 60 per cent or less.

Even if your LTV was high (for example 90 per cent, meaning your deposit is 10 per cent) the last time you borrowed against your home, recent increases in house prices could mean that you will qualify for a more competitive deal when you come to remortgage.

It is particularly important to shop around for a cheaper deal if you have moved on to your lender’s standard variable rate (SVR), as most SVRs are usually at least two percentage points higher than the best buys available on the market.

You can plan ahead – and prepare

If you are still on a super low fixed rate, make the most of it either by putting money aside each month or possibly even overpaying the mortgage. That will put you in a better position when you do come to switch. Getting into the habit of allocating more of your monthly spend to your mortgage now will mean you do not have such a big shock when your current deal ends, and that will give you peace of mind. And if you put that money in a competitive savings account, you might even earn more interest on it than you’re paying on your mortgage.

You can ask to temporarily switch to interest-only

One of the easiest ways to cut your monthly mortgage payments is to ask your lender if you can temporarily switch from a repayment mortgage to an interest-only mortgage for six to 12 months. This strategy will cost you more in the end – and as you are no longer paying off your debt, you will move no closer to owning your home. But, as a temporary measure, it can be helpful as a way of significantly reducing your monthly outgoings.

Such a strategy should be considered a last resort. You will end up paying more in the end, but that may be better than struggling and bankrupting yourself now.

Lenders will typically only allow you to do this switch on a temporary basis, for example for six to 12 months. During this period, you may be able to increase your income, for example by getting a higher paid job, or you may decide to sell up and downsize so that you can afford to switch back to a repayment mortgage on your home. The good thing is, taking this step won’t affect your credit file, as long as you make your payments on time.

Source: Donna Ferguson of inews 25^th June 2023

 

The Government have set forward their Renters Reform Bill, which is now making its way through the Parliamentary process, with aims to be law by the end of 2023.

We’ve summarised the key proposals that will debated in the House of Lords and House of Commons. Continue reading to stay up to date.

Tenancy Reform 

• Fixed-term tenancies are ending and being replaced by periodic tenancies that don’t have an end date. Tenants will be able to leave the tenancy by giving two months’ notice
• Rent increases limited to one increase per year, a form must be completed by the landlord and served to the tenant with two months’ notice

End Of No-Fault Evictions 

• Under the new legislation, section 21 ‘no fault evictions’ will be abolished
• Landlords will only be able to evict tenants under certain circumstances under section 8 grounds

Private Rented Sector Ombudsman Portal 

• This independent body will oversee dispute resolutions, providing a fair and impartial platform for tenants and landlords alike
• Membership for landlords will be mandatory

Private Rental Property Portal  

• Landlords will be legally required to register themselves and their properties on a new property portal, created to help facilitate communications with tenants

Renting With Pets  

• Tenants will now have a legal right to request permission to keep pets in their rented homes. Landlords must consider these requests and cannot unreasonably refuse them.​​​​​​

Additional Measures 

• No blanket bans on renting to benefit claimants or families with children allowed

Applying the Decent Homes Standard to the PRS for the first time, ensuring that rented properties meet minimum quality requirements.

What’s Next?

We’ll keep you informed as the Bill makes its way through Parliament.

If you find that landlords require extra support, there is additional information on the government website and general PRS information on our blog.

Source: Paragon 30^th May 2023