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As research reveals that 45% of UK adults are losing sleep over money, we’re here to remind you of the value of professional advice.
Counting cost-of-living sheep
The squeeze on people’s finances caused by the cost-of-living crisis is understandably a key reason why people are struggling to get enough shut-eye. If you’re awake with worry, you are not the only one struggling.
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Thankfully, there are ways to lessen the burden. Financial advice has been shown by countless studies to lead to better financial outcomes.
Not only that, advised consumers tend to exhibit lower levels of anxiety over their household finances, as well as feeling more in control of their finances and report feeling better prepared to cope with life’s shocks.
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A study found that 42% of people would value extra financial advice or guidance during the cost-of-living crisis. It is time to take back control and enjoy sweet dreams in 2024; your mental health and well-being are too important not to prioritise.
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Mortgage Rates Cut as Price War Continues
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
Should I get a 2 or 5-year fixed rate mortgage?
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 18th October 2023
Mortgage rates falling as drop in inflation provides ‘confidence to lenders’
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?
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