According to the latest figures from Moneyfacts, the average two-year fixed rate as of the start of this year is 5.79 per cent, whilst the average five-year fixed rate is 5.63 per cent. This is across all loan to values (LTV).
Figures from L&C, which collates remortgage fixed rates from the top ten lenders, state the average two-year fixed rate is 5.09 per cent and five-year fixed rate average is 4.8 per cent.
This compares to post mini-Budget when the average two-year fixed rate peaked at 6.47 per cent and average two-year fixed rates reached 6.32 per cent.
The average mortgage rates at the start of this year are also significantly higher than those recorded at the start of 2021 and 2022 where average rates for both two and five-year fixed rates were below three per cent.
When will rates fall and how far?
Brokers said that the mini Budget premium, where rates soared due to economic volatility pushing up swap rates, had unwound to an extent but expected increases in the base rate were having an impact.
However, they said they expected pricing to continue to come down as funding costs had stabilised and lenders were becoming more competitive on price.
There was disagreement amongst brokers as to how quickly pricing would fall, with some saying that rates could fall more quickly as lenders look to secure market share, and others saying that they may take a more cautious approach.
‘Slow correction’ more likely?
Sabrina Hall, mortgage and protection adviser at Kind Financial Services, said that a return to “super low rates” seen in 2020 and 2021 were unlikely but an “element of correction” was still needed.
“The problem is that we are going to see a slow correction because none of the lenders want to show their hand and stand out from the crowd with their rates for fear of being bombarded with cases that they can’t service all in one go. I predict that we will continue to see slow and steady rate deductions for a few months yet,” she noted.
Justin Moy, managing director at EHF Mortgages, said that fixed rate pricing could take the best part of the next year to settle as there were many factors influencing it, such as inflation and demand.
He noted that if demand drops as predicted then rates would be in “better shape by Q4 latest”.
“It is unlikely we will have rates anywhere near one per cent unless the country experiences an extreme recession over a long period, so I would encourage borrowers to expect the new normal range of three to four per cent for mortgage rates, and if we go below this, it’s a real bonus,” Moy added.
He added that rates of three to four per cent were “still good value” compared to historic pricing.
Craig Fish, founder and director at Lodestone Mortgages and Protection, agreed with three to four per cent range, noting that there could be a potential to drop further if or when the base rate starts to reduce.
“The days of sub-one percent mortgages are well and truly over, never to be seen again. The key thing that borrowers need to keep in mind right now is flexibility. They need to ensure that they keep their options open wherever possible or, at the very least, not tie themselves into long-term fixed rates for now.
“This will give them the benefit of not paying at the higher rates we are currently seeing for too long, allowing them to switch to lower rates sooner rather than later,” he explained.
Lenders will get more competitive
Widespread expectations from economists and lenders are that the base rate will peak at 4.5 per cent later this year.
Gary Boakes, director at Verve Financial said that current rates are “priced with that in mind”, adding that he expected rates to be “fairly stable” this year unless there is volatility around base rates and swap rates.
He continued: “We will however see the competitive nature of the lenders throughout the year as they fight for market share so we will see lenders cut margins to grab business and then increase rates are service levels suffer.”
Riz Malik, director at R3 Mortgages, said he expected mortgage pricing to be “competitive” in the start of this year as “lenders cut their margins to gain market share as financial markets remain stable”.
“The Truss premium has disappeared but increases in the base rate have offset this. Rishi has shown us so far that he is very vanilla, and this is unlikely to change so no risky moves are expected. Those coming off mortgage deals in 2023 which start with a one are going to be sorely disappointed.”
Michael Webb, managing director at Mortgage Republic Limited, noted that the “most important factor” moving forward would be supply and demand for mortgages.
“Currently, we face no supply issues for lending. The demand has dropped somewhat, and as such banks still need to lend money. As Q1 gets into full swing, I fully expect to see lender competition start to drive down the rates on offer.
“But remember, that it is relative to where the base rate has come up to over the past few months, so we will not see silly low rates again,” he added.
