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Posted: 21 August 2024

The mortgage market has recently seen significant shifts in interest rates, creating both opportunities and challenges for prospective homeowners.

The Downwards Trend

Mortgage interest rates are beginning to trend downward. This is a sharp contrast given their trajectory as the Bank of England’s policy adjustments and attempts to solve inflationary pressures over the past year had such rates surging. As reported by the Financial Times, the average two-year fixed mortgage rate has dropped to 5.77%. This is down from earlier highs that saw rates exceed 6%. Similarly, five-year fixed mortgage rates have decreased to 5.53%.

While these rates are still significantly higher than the historical lows seen during the pandemic, the downward trend is evident. Lenders such as Nationwide have led the charge in lowering rates, with some deals dipping below 4%. A significant milestone in a market that was recently experiencing considerable uncertainty. However, this is further compounded by the fact that there seems to little expectation that these falling rates will slow down. Fuel adds to the fire when the recent speculation by the I Times is considered as there are fears that mortgage rates could fall even further. Plus, some experts predicting rates could drop to as low as 3.5% by the end of the year. This forecast is fuelled by a combination of factors. These include a stabilizing economic outlook, falling inflation, and reduced pressure on the Bank of England to continue raising interest rates.

The Consequence

Whilst the drop-off is seen as a positive development as it provides some relief to homeowners. Who are grappling with rising costs and removes a barrier of entry for those looking to enter the property market. These falling rates must be understood in the broader context.

The Bank of England’s base rate, which heavily influences mortgage interest rates, was raised multiple times over the past two years. Aiming to combat inflation, reaching as high as 5.25%. This, in turn, caused mortgage rates to spike, pricing many buyers out of the market. In addition, leaving existing homeowners with significantly higher monthly payments when their fixed-rate deals expired. Hence, whilst the falling rates are good news for maintenance and market entry. The negatives are apparent as some are priced out of the property market.

The Cause of the Trend

The downward trend in mortgage rates reflects the belief that the Bank of England may have reached the peak of its rate hikes and could soon start easing its monetary policy.

Nevertheless, mortgage rates are still affected by a wide range of variables. Such as lender competition, the overall economic environment, and the availability of credit. Fixed-rate mortgages tend to be more influenced by the long-term outlook for interest rates. While variable or tracker mortgages are directly tied to the Bank of England’s base rate and may fluctuate accordingly.

How this applies to homeowners

The rate reductions could provide significant savings for homeowners. For example, the difference between a 5.77% mortgage rate and a 3.5% mortgage rate on a £200,000 loan over 25 years could save a homeowner hundreds of pounds a month. Such savings could have a profound impact on the housing market. This potentially increasing demand as more buyers find property purchases affordable again.

Mortgage market remains volatile.

However, even with these reductions, many analysts warn that the mortgage market remains volatile. The shelf life of mortgage deals—previously as long as 30 days—has now dropped to 17 days, underscoring how quickly rates can change. This volatility means that while low rates are available. They may not remain on the market for long, necessitating quick decision-making by borrowers.

Additionally, while fixed-rate mortgages offer certainty in monthly payments, some buyers may be drawn to variable-rate deals. Particularly if they believe rates will continue to fall. Yet, these products carry the risk of future rate hikes if the economic situation changes, which could once again lead to rising payments.

Monitor trends.

For those considering refinancing or entering the housing market, it’s important to monitor these trends closely. The current reduction in mortgage rates may offer a brief window of opportunity. Yet, it also requires quick action to lock in favourable terms before market conditions shift again. Collaborating with financial advisors and mortgage brokers to stay informed of the latest rates and trends is essential in such a dynamic environment.

How we can help

Navigating this fluctuating mortgage landscape can be complex, which is why partnering with experienced solicitors like those at THB Legal can be crucial. A reliable legal team ensures that once a mortgage offer is secured. The conveyancing process proceeds smoothly and efficiently, helping clients take advantage of favourable interest rates before they disappear. Whether you’re purchasing your first home or expanding your property portfolio, THB Legal’s expert conveyancing solicitors work to mitigate risks, ensure compliance. Plus, move the process forward as quickly as possible, helping clients secure their property. If you require our conveyancing services, please do not hesitate to get in touch. Complete our online enquiry form send an email or call our Chelmsford Office on 01245 493959 or Shoeburyness Office on 01702 298 282.