An optimistic look at the future. This could be your week, your month, or even your year.
As of January 2024, UK mortgage rates are finally set to fall below 4%, with some lenders such as HSBC, Nationwide and Halifax cutting rates as low as 3.89% for those remortgaging with a 5-year fixed.
This all comes thanks to the expectation that the Bank Of England will cut its base rate later this year. This is a breath of fresh air for all of us who were feeling the pressure of the 6% interest rates in summer 2023.
Here are some examples, courtesy of Money Saving Expert:
And the cheapest fixed rates for those purchasing a new home (available to those with at least a 40% deposit):
Two-year fixes from 4.1%.
Five-year fixes from 3.92%.
10-year fixes from 3.99%.
The cheapest fixed rates for that remortgaging (available to those with at least 40% equity in their home):
Two-year fixes from 4.24%.
Five-year fixes from 3.89%.
10-year fixes from 3.99%.
‘The improvement in rates means the top two-year fixes for home buyers now cost around £80 a month or £960 a year less per £100,000 owed compared to the summer of 2023, while the top five-year fixes for home buyers are £60 a month or £720 a year less compared to the same period.’
Kit Sproson
This is great news for those looking to buy this year, alongside efforts by developers to provide houses at 20% less for first-time buyers with an income under 80k, under Section 106. For those remortgaging as well, there’s less fear that families will need to pay through the nose once their current deal ends.
This begs the question; will the rates continue to drop? There is an expectation that rates will drop again, or at least that other lenders will drop their rates in competition with these high street leaders. But it is hard to predict the future with certainty, lenders are currently working on assumptions, creating a projection based on this. Sudden changes in the market are unpredictable at the moment, these changes can be to buyers’ favour or detriment.
What about a fixed rate? A fixed-rate would secure you these new interest rates, but locking in at this rate is a double-edged sword. The decision is based on what buyers value more, the security of a fixed rate, with the risk of missing out on lower rates to come. Or the risk of waiting and seeing rates climb again or opting for a tracker mortgage which may not always stay competitive.
Consider some pros and cons to better figure out what is best for you.
Aside from the obvious benefits of securing the current interest rates, you also benefit from security against lenders changing their affordability criteria.
You’re also likely to pay fewer fees to remortgage later. The biggest saving will be the arrangement fee, which can be anywhere from 100s to 1,000s each time you choose to set up a new mortgage. Additionally, a fixed tariff means less frequent credit checks. These will be performed by every company that you may move to, each check affects your credit score slightly.
However, there are still cons, if we do see a large decrease in interest rates, this is something you would then miss out on, meaning you feel like you’re paying more than you should. Getting out of a fixed rate can be costly in early exit fees, so you are likely to wait out your chosen term before you can benefit some any lasting interest decreases. If you come into money or a circumstance change, early repayment fees can sting. Some lenders will allow a 10% overpayment but anything above this is likely to incur charges.
It is most important to evaluate what you can and cannot afford, and your current circumstances. If you have been waiting to buy your first home or move to a more comfortable home, it seems now could be your chance. Many of us have been waiting in the wings for the time to pounce but feared the instability during the last 3 years. This instability looks to be coming to an end.
If in doubt, it is always a good idea to speak to a mortgage advisor. They are there to help you, and often they can work with you to decipher all the jargon and help guide you through the process to ensure you have everything you need.
Got some questions about new builds? Check out our last blog on New Build Positives