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Mortgage pricing may hold steady as base rate nears predicted peak – industry reaction

  • 02/02/2023
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Mortgage pricing may hold steady as base rate nears predicted peak – industry reaction
Fixed mortgage interest rates could stay fairly stable despite today’s base rate increase, the industry has predicted.

Following today’s 0.5 per cent rise, it was suggested that the heavily forecast four per cent rate had already been priced in by lenders and variable mortgages would be mostly impacted. 

Vikki Jefferies, proposition director at Primis, said: “The forward planning from lenders and brokers across the mortgage market means that, while today’s decision will see the cost of borrowing increase for borrowers on tracker mortgages across the UK, many fixed mortgage rates should remain somewhat insulated from any significant impact.  

“We have already had a positive start to 2023 in terms of rates reductions, and we are optimistic about what this means for borrowers over the next year.”  

Angus Stewart, chief executive of Property Master, said lenders were “introducing new fixed rate products which are looking more competitive when compared to discount and tracker rates”. 

Mortgage rates were already descending following the turmoil of the mini Budget, and data from Moneyfacts showed the downward trend has continued so far this year. 

Although average Standard Variable Rates (SVRs) have gone up from 6.64 per cent in January to 6.84 per cent in February, two, five and 10-year fixed pricing is lower. 

Since the start of the year, the average two-year fix has fallen from 5.79 per cent to 5.44 per cent, five-year fixes have dropped from 5.63 per cent to 5.2 per cent and 10-year fixes have decreased from an average of 5.47 per cent to 5.34 per cent. 

Rachel Springall, finance spokesperson for Moneyfacts, said: “The mortgage market is slowly recovering from the volatility of interest rate uncertainty towards the tail end of 2022, but the markets are expecting both rises and falls to base rate this year.” 


A knock on buyer confidence 

Adam Oldfield, chief revenue officer at Phoebus Software, said the decision was not unexpected but as inflation started to level out, it would be interesting to see if the rate still went up to its predicted peak of 4.5 per cent. 

He added: “Whether or not mortgage lenders are automatically raising their rates it may be enough to cause a further knock in confidence, which could stall the market further. We have heard that more househunters have registered interest in January, so demand is picking up.   

“It just depends on how people perceive another hike in the base rate and how badly they need to move. No doubt lenders will be jockeying for business, which may see the recent spate of fixed rate reductions continue.” 

Brian Murphy, head of lending at Mortgage Advice Bureau, said the end of interest rate increases could be in sight “but not yet in touching distance”. 

He added: “However, there could be a glimmer of hope on the horizon, with forecasts predicting a fall in rates later this year.  

“It’s hard to feel positive at the moment, but all predictions suggest we are close to reaching the peak of the hikes – and all eyes will be on the next decision to determine whether interest rates have any further distance to climb.” 


Unsustainable low rate environment 

It was also suggested by those in the mortgage industry that the prolonged period of ultra-low rates would have had to end at some point. 

Andrew Gething, managing director of MorganAsh, said: “With a clear mandate to reduce inflation it is no surprise to see the half-point hike announced today. There are solid indications that inflationary pressures are reducing, so there is a fair chance this increase will not need to be repeated.  

“While it is painful for mortgage borrowers, we need to put in perspective the very low rates the mortgage market has enjoyed were unsustainable, and hoping they will return to such low rates is unrealistic.”   


Going too far, too fast 

Lewis Shaw, owner and mortgage broker at Riverside Mortgages, “The Bank of England hiking rates once more shows how out of touch they are with the real world and how politicised this has become. We know that inflation has peaked and is nailed on to reduce during the next few months and that people are struggling day to day. For mortgage borrowers, we shouldn’t see much change as it was already priced in apart from trackers.” 

Riz Malik, director at R3 Mortgages, said the increase was “too steep” considering inflation was already due to fall by the end of the year.  

Marcus Wright, managing director at Bolton Business Finance, said the Monetary Policy Committee were “going too far, too fast” and the economy was going to be hit hard. 

“The Bank of England, after reacting at the speed of a sloth to rising inflation, has now gone the opposite way and are like a Cheetah on caffeine,” he added. 

Paul Wilson, chief investment officer at Channel Capital, said the rapid increases to rates were not helpful to lenders either. 

He said: “For lenders, it has hindered their efforts to secure senior debt from banks and institutions, many of which are reticent to deploy capital in the current climate of changing rates. The shortage in senior debt – which is essential, given it makes up the majority of a lenders’ funding stack – is, in turn, preventing or limiting lenders from issuing loans to clients. It becomes a vicious circle. 

“At times like these, other sources of capital become more important. Mezzanine finance is a prime example, and we’re seeing more lenders look to this option when building their funding stack. By securing mezzanine finance from more nimble, ambitious, or proactive investors, lenders are then able to provide much-needed confidence to the senior debt providers. As such, more must be done to champion the role of mezzanine finance in the current climate; it is keeping the lending industry active and is likely to remain in high demand over the months and years to come.” 


One more hike? 

With two members voting to keep the base rate at 3.5 per cent due to the impact of the previous increases, some suggested that the next hike may be the last. 

It was also acknowledged that the Monetary Policy Committee pointed to a stronger than expected economy alongside steadying inflation, which may suggest a future loosening of monetary policy. 

Philip Dragoumis, director and owner at Thera Wealth Management, said: “The move by Threadneedle Street was as expected, but the language used in the minutes seems to suggest they might stop here. Sterling is now coming off sharply, which suggests that the market thinks the rate hiking cycle has pretty much finished.” 

Giles Coghlan, chief market analyst at HYCM, said: “Today’s tenth consecutive interest rate rise from the Bank of England may well be the last. The central bank has now removed the word ‘forcefully’ from its guidance, indicating that it may feel confident to not hike interest rates any further as long as inflation keeps coming down. 

“Today the Bank of England has decided to slow down on hikes in order to try and stimulate growth. Growth forecasts were revised slightly higher for 2023 and 2024, but both are still in negative territory. Given that the IMF has predicted that the UK is set to be the only G7 economy in a recession this year, this revision higher is at least a ray of hope.” 



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