The Telegraph and other news outlets reported over the weekend that we may be seeing the first signs of mortgage rates dropping since the former Chancellor of the Exchequer Kwasi Kwarteng announced a disastrous mini budget a few weeks ago. But are rates actually dropping? And if so, does this mean we are heading back to the rates we have been used to for so many years?
Anybody who has been following the news recently will know that the financial markets fell into a state of chaos a few weeks ago as the UK government announced a mini budget that was wasn’t very well thought out, clumsy, and exactly the opposite of what the Bank of England was trying to do to decrease inflation. Because of planned tax cuts announced in mini budget, the Bank of England responded by instigating an emergency rate increase which in turn caused mortgage lenders to boost their own rates way above what they have previously been.
A chain reaction of events led to the Chancellor getting the sack and then eventually the Prime Minister Liz Truss resigning after only 44 days in office, the shortest period of time someone has served as Prime Minister in UK history. But news outlets and money comparison websites have started to report that since the new Chancellor Jeremy Hunt has pretty much scrapped the mini budget tax cuts and since Truss has resigned, we have seen mortgage rates dropping, albeit marginally.
Are Mortgage Rates Dropping?
According to money comparison website Moneyfacts, the average 2-year fixed mortgage rate was previously at 6.65%. However, since the rollback of the mini budget and the shakeup in the government, this has reduced to 6.55%. They also reported that the average cost of a 5-year fixed mortgage rate was previously 6.51% but has since dropped to 6.43%. We can talk about percentages all day long, but let’s look at these rates in real terms to see what impact the mortgage rates dropping could have.
If you were borrowing a £300,000 mortgage over a 25-year period, on the previous average 2-year fixed rate at 6.65%, you would pay £2,054 a month or £49,296 over the two years. With a rate reduction to 6.55% you would pay £2,035 a month or £48,840 over the two years. That gives you savings of £456 over the two years. Not much to shout home about yet I’m afraid, but it’s a start.
If you were borrowing the same amount on a five-year fixed period, the old average rate would cost you £2,027 a month or £121,620 over 5 years. On the new reduced average rate, you would pay £2,013 a month or £120,780 over the 5 years. That gives you savings of £840 over the period. Again, not a huge amount but better than rates rising!
Lenders Reduce Mortgage Rates
Before the weekend, Accord mortgages announced that they would be reducing their mortgage rates on certain products. The first lender to officially announce this. And in the last few minutes, HSBC and Coventry have also announced that they will be reducing rates across their products. Although they have not yet announced what these new rates will be, HSBC is expected to reduce rates on five-year fixed mortgages at 75% LTV by up to 0.11 percentage points. That means the cheapest rate on this kind of loan would be 5.37%, a decrease from 5.48% previously.
Again, the rates are not dropping by a lot, but it is encouraging to see even a small drop. Here is a roundup of what has changed for Accord:
The changes are to Accord’s Buy-to-let range:
- They have released a range of fixed rates at 60% LTV with rates starting at 5.55% for a five-year fixed product. Rates have also been reduced on some products at 65% and 75% LTV of up to 0.10%.
- A selection of discounted variable rate products will be added to their portal today, with two-year fixes up to 75% LTV, and rates starting from as low as 4%.
- Accord will offer a two-year discounted variable rate of 4%, up to 60% LTV, available for both house purchase and remortgage, with a £995 fee, free standard valuation and £150 cashback.
- Also, a three-year fixed rate of 5.99%, up to 60% LTV, available for both house purchase and remortgage will be added, which comes with a £995 fee, free standard valuation and £150 cashback.
- Finally, there will be a five-year fixed rate of 5.74%, up to 65% LTV, available for both house purchase and remortgage, which comes with a £2495 fee, free standard valuation and £250 cashback.
What Do The Mortgage Experts Think?
Now, we as mortgage brokers and advisors, are having more conversations that ever about when we think mortgage rates are going to go down. And the answer that we and the mortgage market in general have is…we aren’t exactly sure, but we have an educated idea. Most mortgage advisors predicted that rates would stay at more or less where they are for probably a year or so and then start to reduce when inflation goes down. But as of late, there has been a lot of encouraging data that shows that rate rises that have already occurred were probably more than needed. And perhaps this might signal that we might be out of the woods sooner than we thought.
Of course, the economy still has a long way to go, and it is going to take a lot for money lenders to have confidence in lending again but any reduction in rates, however small will not only save people money, but also signals that things are going in the right direction. So, do you have a fixed product ending within the next 6 – 12 months? What should you do? Speak to an advisor now so that you can get financially secure for the next couple of years. Then, when rates do drop more (which we have every faith they will) you can remortgage or product switch back on to a more competitive and beneficial rate.
If you or anyone you know is worried about your mortgage rates and being able to afford higher interest, don’t go it alone. Give one of our advisors a call today to see how we can help you get a handle on your finances.