Our final Word on the Mortgage Market for 2023

A (Christmas) word on the mortgage market

Hello and a very festive welcome to the last A Word on the Mortgage Market for 2023. In what has become (sadly) an annual theme, it’s been a challenging year. Throughout the year we’ve battled both the rampant beast that is inflation and what feels like the perennial rising of interest rates. But the good news (that’s a relative statement you understand) is that both are now destined to head in the “right” direction. Albeit at different speeds. There’s a little more on that to follow.

Before we go (briefly) into that, we just wanted to take the opportunity to wish all of our clients a very Merry Christmas and a Happy New Year. As always, it’s been, despite the aforementioned challenges, a pleasure helping you with all your mortgage needs and we very much look forward to doing more of the same next year. Forgive us for this somewhat self-serving statement but, in times like these, we humbly believe the value of a mortgage broker is amplified exponentially. Anyway, let’s get on with the show.

What does 2024 look like?

A fine question. Whilst there are of course a number of different factors that will influence this, there are three that we want to cover.

Bank Rate

As you will probably be aware, just yesterday the members of the Bank of England’s Monetary Policy Committee voted in favour of keeping rates at 5.25%. Our first reason for Christmas cheer. There is now broadly universal agreement from the people that know these things that the prolonged period of rate rises is over, and we are now looking to when interest rates will start to fall.

There’s a good deal of difference in predictions from across the market. Some bold commentators are saying as early as February 2024, some say May, and some say later in the year. We think February is a little optimistic, but that the first cut will come around the middle of the year. What does seem to be clear across the board is that 2024 will see a small amount taken from Bank Rate (we reckon we will have two 0.25% cuts) and that we will need to look further afield to 2025 for more meaningful cuts in the rate.

Inflation

Of course, what happens to Bank Rate is dictated in no small part by the journey of the UK’s inflation rate. This time last year, inflation stood at a whopping 10.5%, but the last few months have seen a significant fall in the rate, with the latest data pegging inflation at 4.6%. That’s our second reason for Christmas cheer. New data comes out next week and we think it will fall again, but only slightly. The general consensus seems to be that we (again) need to look to 2025 for a time when inflation falls back to the government’s much-publicised annual target of 2%.

Swap Rates

In the world of mortgages, we look to Swap Rates (the rates at which banks lend to each other and a key determiner of mortgage pricing) to provide an indication of pricing. At the time of writing (last night, with a small sherry, in case you are wondering), 5-year Swaps stood at 3.87%, which is almost 0.5% lower than they were just a month ago. This is our third reason for Christmas cheer. Incidentally, our mortgage technical team, those wonderful guys who know more about the market than most, reckon we need to see 5-year Swaps at around 3.5% before we see the ever-popular 5-year fixed rate below 4%. Which leads us nicely into the next part of this month’s edition.

What, pray tell, should borrowers do now?

Firstly, if you are due for a remortgage in the next six months, the New Year presents a good opportunity to start the conversation. As we say with all the guaranteed regularity of, well, Christmas, no amount of generic advice will do. Only advice that is tailored to your unique circumstances is the way to go.

That being said, a brief overview seems sensible. We mentioned this last time we spoke, but it bears discussing again. Arguably there are two fundamental decisions facing borrowers right now. Do you go down the fixed rate route or plump for a tracker/discount? And how long should you take the product for? To be fair, on rereading that, those questions are invariably always the most important ones, but let’s not worry about that for now, hey?

There’s certainly a good degree of sense in taking a short-term view now in the hope of better long-term deals being available in a couple of years’ time. Currently, the best initial rates on a two-year discount or tracker are around 5.3%-5.5%. For a 2-year fixed rate on the same basis, you can expect to pay less, around 4.8%-5%. Statement of the obvious, but which one will prove to be better value over the course of the loan depends on how far (and how quickly) bank rate falls.

Right now, the best 5-year fixed rate on the market has a pay rate of 4.6%. So, as we stand, the title for lowest rate is held by the 5-year fixed rate. But the bigger question is where we will be in 12 months’ time. If, as expected, rates start to fall at some point, there is a good chance that we will see much better pricing in the 5-year market. So, taking a 5-year deal now might not be the best course of action.

Hopefully that was (sort of) helpful. At the very least, it does prove our point. Only advice that is tailored to you will do. And so, to conclude with one statement that covers the lot: keeping in touch with your adviser is crucial.

One more reason for Christmas cheer

Our fourth and final reason for Christmas cheer is that it is - wait for it - Christmas. As we said at the top, it’s been another challenging year. We very much hope you find the time to have a relaxing and enjoyable break.

And, of course, that the big man brings you all that your heart desires. As for us, we’ll be taking a well-earned break for Christmas to ensure we come back in the New Year raring to go again.

So, on that note, we will bid you adieu for 2023. In the words of Sir Paul, we wish you a Wonderful Christmastime. See you on the other side.

It’s good to talk

We very much hope you've found A word on the mortgage market useful and interesting. If you'd like to discuss anything we've talked about. Or indeed if you have any other mortgage related needs, then please do get in touch with your adviser. Until next time, we bid you adieu.

Your consultant: Ricki Wenn
Give them a call:  07816 604 798
Send them an email:  rickiw@mortgageforce.co.uk

All that legal jazz

Of course, you know this, but it never hurts to remind you that:

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP REPAYMENTS ON YOUR MORTGAGE OR OTHER LOANS SECURED UPON IT.

We should also remind you that if you have an interest-only mortgage please make sure you have a suitable and viable method to repay your mortgage at the end of the term.

And some of the products contained in this newsletter are non-regulated, such as Buy to Let mortgages and, accordingly, the protection that is normally afforded on regulated products do not apply.

Interest rates may go up as well as down. Make sure you can afford your mortgage repayments and review your budgets frequently. Should you experience or foresee any difficulties, speak to your lender immediately. For advice in relation to your circumstances on a specific matter, please ask us for a personal illustration.

Each advising firm is owned independently and they will set out the way they work in the initial disclosures to you and are directly authorised and regulated by the Financial Conduct Authority. Mortgage Force (UK) Ltd is registered in England and Wales No: 09394027.