There is “no guarantee” that mortgage rates will fall further, or even stay at current levels, following the Bank of England’s decision to hold interest rates, Octane Capital CEO, Jonathan Samuels, has warned.
The Bank of England's monetary policy council voted to hold rates at 5.25 per cent at their meeting yesterday (February 1).
Samuels said the MPC’s decision to hold interest rates three times last year helped to “boost buyer confidence”.
However, he warned this was due to the fact the mortgage market had reacted by lowering swap rates.
He explained that, according to Octane Capital’s previous analysis, the average one year swap rate had fallen for five consecutive months between July and December last year, reducing from 6.09 per cent to 5.2 per cent in that time.
Five year swap rates had fallen by an even greater extent, reaching an average of 4.32 per cent in December, down from 4.48 per cent in November.
This reduction in swap rates had “naturally” resulted in a fall in mortgage rates, with the average rate currently offered on a two year, fixed-rate term at a 75 per cent LTV falling from 5.43 per cent to 5.03 per cent over the course of the past year.
In turn, this has enticed buyers back to the market and the latest data on mortgage approvals showed there have been three consecutive months of positive growth, following the first decision to hold the base rate at 5.25 per cent in September of last year.
Latest decision
However, Samuel warned that, this time, the decision to hold the base rate at 5.25 per cent could have the opposite effect.
He explained the initial expectation from the market was that interest rates would fall in January, but despite this, Octane’s analysis showed that five year swap rates have increased by a daily average of 0.27 per cent so far this year.
Over the same time period prior to the start of 2024, Octane’s analysis showed they had been declining at a daily rate of 0.77 per cent.
“Now that the market’s expectation has changed with rates being held for a fourth consecutive time, the recent increase in swap rates is only likely to continue,” Samuel explained.
“As the lead market indicator of mortgage rate movement, we can only anticipate that mortgage rates will start to follow suit in February.”
He added that, while the outlook may be a more positive one for the year ahead, there’s “no guarantee” that mortgages will continue to improve.
Therefore he advised buyers to act with “urgency now” if they wish to secure the rates currently on offer.
tom.dunstan@ft.com
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