Nevertheless, mortgage rates have been steadily declining. Many analysts are now expecting the first base rate cut to happen in May in light of a faltering economy and falling inflation. The latest raft of mortgage rates to hit the high street show the anticipated direction of travel, predicated largely on the expectations of continued falling inflation.
Lower rates are welcome because the economy has been showing signs of creaking. According to data published in December by the Office for National Statistics, output in all three main divisions – services, manufacturing and construction – was in negative territory showing an overall contraction of -0.3 per cent.
There are rumours that the hitherto buoyant employment market is beginning to slow. UK wage growth has dropped off as the estimated number of vacancies fell in the latest quarter, data from the ONS has shown, in a sign that pressures on the labour market are “cooling”.
But the picture is mixed as Bank of England data suggested at the beginning of this month that consumer borrowing was at its highest for nearly seven years in November and lenders approved the most mortgages since the half year point.
All of this complexity means brokers will need to be quick to secure good pricing wherever possible to protect clients from payment shocks and increased payment stress in the New Year. Rates may be falling but they remain well above the historic lows.
Borrowers confused, brokers needed
Borrowers who are nearing the end of extremely low fixed rates are still finding it difficult to make up the occasionally enormous difference between their prior monthly payments and their new cost of borrowing.
The pain of more expensive borrowing is clear to see. In December, the Bank of England reported that some 15.8 per cent of all outstanding balances were in arrears, new cases of arrears were 0.3 percentage points lower than in the previous quarter and 5.1 percentage points more than a year earlier. At £18.8bn, the total amount of outstanding mortgage amounts with arrears climbed by 11.4 per cent over the previous quarter. Compared to the prior 12 months, this represents a 44 per cent increase.
While borrowers’ personal circumstances may deteriorate, we should be quick to remember that solutions such as product transfers may not continue to provide all the answers. In Q2 2023, 84 per cent of remortgagers stuck with their current lender rather than switching, according to UK Finance.
Product transfers are attractive because they can provide increased speed and stability, minimise paperwork, and shield borrowers from prepayment penalties in the event that they refinance with a different lender. But, under the new Consumer Duty rules, they may no longer be the right course of action for many.
Markets are complex and fast-moving. Brokers will be intrinsic to successful outcomes for borrowers.
