Brokers have shared their latest predictions on when fixed mortgage rates will fall below 4 per cent, with some saying they are likely to come down “by March” while others are “doubtful” rates will fall that low for at least the next six months.
At the end of last week, a handful of high street lenders signalled cuts to their fixed rates.
Virgin Money made cuts of up to 0.73 percentage points, introducing a five-year fix with a 4.25 per cent interest rate.
Nationwide and Halifax also cut rates by around 0.20 percentage points, introducing 4.34 per cent and 4.40 per cent five-year fixes.
One broker said 10-year fixes are likely to fall below 4 per cent very soon, before five and two-year fixes follow suit in the summer.
We are in the midst of a competitive market between lenders.Kylie-Ann Gatecliffe, KAG Financial“I think we are only a matter of weeks away from fixed rates going below 4 per cent,” said Craig Fish, managing director at mortgage broker Lodestone.
Fish reckons competition could be hotting up for 10-year fixes, as some hover just over 4 per cent.
One 10-year fix has already fallen below 4 per cent.
Lloyds is currently offering a 10-year fix at 3.99 per cent, while Virgin Money is the next cheapest lender offering a 10-year at 4.10 per cent, according to Moneyfacts.
“Lenders [are] looking to tie clients into longer term contracts because right now they are all vying for business,” Fish explained.
Historically, however, uptake of longer-term fixed rates in the UK has been small when compared to other European countries.
“We are, it seems, wary of the commitment and would rather have the flexibility of the two and five-year fixes,” said Fish.
“I would think that these options will drop below 4 per cent also, but during the summer months.”
Currently, Yorkshire Building Society is offering the cheapest five-year fixed rate in the UK at 4.18 per cent, according to Moneyfacts
Financial markets expect the Bank of England to raise interest rates by 0.5 percentage points next month, from 3.5 to 4 per cent due to high underlying inflation and strong wage growth.
This has prompted some brokers to remain more cautious over their rate predictions, while others reckon lenders have already priced this rise in due to the uncertainty following the "mini" Budget last year.
Lenders battle it out
Last week, brokers signalled the beginning of a “price war” among lenders.
Director of Selby-based broker Kylie-Ann Gatecliffe said she can see sub-4 per cent rates making a comeback.
“We are in the midst of a competitive market between lenders, with constant rate updates and reductions,” she said.
“The doom and gloom from the back end of last year caused some buyers to put the brakes on. However, with the market settling down, interest rates reducing and more properties bouncing back onto Rightmove – rates dropping below 4 per cent would be welcomed by the housing market.
“I predict that they will have fallen below 4 per cent by March. As the sunshine returns, I hope we see interest rates start to thaw, providing comfort to those buyers that have been waiting for the market to improve.”
Some brokers reckon rates could come down across the board as soon as next month.
Justin Moy, founder at Chelmsford-based EHF Mortgages, said pricing a mortgage below 4 per cent will be “a sweet spot” for the entire mortgage market – borrowers, brokers and lenders alike.
Although another slight rise in the base rate is on the cards, we will likely see further reductions in fixed rates and I think these may drop below 4 per cent by March, if not sooner.Elliot Cotterell, Windsor Hill Mortgages“There is a lot to be said about the psychology of pricing, and we are getting closer to that mark,” Moy explained.
“We should get there due to lender appetite, and the need to stimulate market activity. Lenders will offer the lowest rate to the lowest-risk business, typically the lower loan-to-value borrowers.
“We may need to wait until February, but anyone who is looking for a new deal just needs to speak to their mortgage broker and stay in touch.”
Many brokers across the UK are currently recommending tracker rates due to the fact fixed rates are still falling, so as to avoid clients locking into rates which could soon disappear.
“Currently, we are seeing tracker rates as low as 3.74 per cent,” said Elliot Cotterell, director of Bristol-based Windsor Hill Mortgages
“I see a lot of possible benefits for clients having flexibility over the next five to six months.
“We'll see further competition between lenders over the coming months and although another slight rise in the base rate is on the cards, we will likely see further reductions in fixed rates and I think these may drop below 4 per cent by March, if not sooner.”
Base rate will put off sub-4% rates
Founder of Teesside-based mortgage broker, Riverside Mortgages, Lewis Shaw has said it's doubtful fixed-rate mortgages will dip below 4 per cent in the next six months simply because the base rate hasn't yet stopped increasing.
“Even though fixed rate mortgages aren't priced directly from the base rate, any increase affects both gilts and, by extension, swap rates, often used as a reference rate for fixed rate debt,” Shaw explained.
“As the saying goes, a rising tide raises all boats. If the Bank of England monetary policy committee agrees on February 2 to a tenth base rate increase in a row, it'll mean that what we call the 'risk-free rate' will be higher and will push up swaps and, by extension, halt the downward direction we've seen over the past few weeks for fixed rates.”
ruby.hinchliffe@ft.com
