City thinking, local knowledge

Do Lower Mortgage Rates Mean Better News for Homeowners? 

By Questa Chartered

Better news for homeowners? The winds of change seem to be blowing in your favour as lower mortgage rates take a promising dip. Yes, you heard it right – some of the big players in the lending game are cutting rates on fixed mortgage deals, and it’s creating quite the buzz. 


What’s driving this optimism, you ask? Well, it looks like the Bank of England’s ‘bitter medicine’ of interest rate rises (as reported in The Guardian) might finally be showing signs of doing its job.


But hold on, let’s take a closer look. The Bank of England has been on a relentless mission, pushing interest rates higher, month after month, but the tide is turning. The financial markets are now predicting that the peak of this aggressive cycle is near, with expectations that rates may reach 5.25% soon and possibly cap at 5.75% by the year-end. Now, that’s quite a relief, considering some people feared a peak of 6.5% not too long ago.


And mortgage providers are banking on this too!


They are trimming their rates on fixed-rate mortgage deals, and that’s music to homeowners’ ears. The average rate on a two-year fixed mortgage deal has just inched down, making it a little easier on the wallet.


What triggered this shift in sentiment? Well, the latest official figures played their part. Inflation took a dip, and core inflation (excluding food and energy) followed suit. The Bank of England’s eagle eyes are on these figures, and the easing of inflationary pressures could mean a gentler rate hike in September, likely topping out at 5.5% or even 5.75%.


This all aligns with an economy that’s approaching stagnation. GDP dipped in May, consumer spending is starting to slack, and retailers are feeling the pinch. So, as the Bank of England contemplates further rate rises, the focus will be on labour market tightness and wage growth. And guess what? Many experts believe that a mild recession and easing wage growth will put a leash on further hikes.


Of course, change is in the air at the Bank of England too. The departure of one of the main critics of steep rate rises from the monetary policy committee could tip the scale in favour of higher rates, possibly inching up to 5.75%.


Experts predict better news for homeowners in the long run. They say that after this peak, we might see a rate cut in late 2024 and 2025, going even lower than investors anticipate. So, there’s a glimmer of hope on the horizon.


However, let’s be realistic – the road ahead might not be all roses. Over the next six months and the first half of 2024, the economy might go through a rough patch, causing some pain. 


People on two-year fixed-rate mortgages might face higher monthly payments, leading to cutbacks on discretionary spending. The labour market might take a hit too, affecting wage growth and possibly increasing unemployment. But for the Bank of England, this “pain” might be a sign that its ‘bitter medicine’ is working.


All in all, the prospect of easing mortgage rates brings better news for homeowners. It’s a time to keep a close eye on the unfolding financial landscape, but for now, let’s enjoy the positive shift in the tides.


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