What’s going on in the Mortage Market?!

Mortgage rates are expected to fall below 4% this year, but experts predict gradual declines rather than steep drops.

Major lenders have started a price war, lowering rates to attract customers this summer. However, the lowest rates are still above the sub-4% deals seen earlier this year.

These falling mortgage costs could benefit Sir Keir Starmer and Rachel Reeves, who may claim credit for the easing of household finances after recent economic turbulence.

Virgin Money and Clydesdale Bank both reduced their standard variable rates (SVR) by up to 0.25% on Thursday. Halifax, the UK’s largest mortgage lender, is cutting rates on its two-year fixed deals by up to 0.13% from Friday, and MPowered Mortgages matched this cut on Thursday. Barclays will also reduce selected fixed rates by up to 0.33% from Friday, marking its third rate cut in two weeks.

Experts anticipate mortgage rates will continue to drop as the Bank of England is expected to lower interest rates from the current 5.25%, boosting confidence in the housing market.

Two weeks ago, the average two-year fixed mortgage rate was 5.97%, and the average five-year fixed was 5.53%. These have since fallen to 5.92% and 5.50%, respectively. However, experts caution that rates are unlikely to return to the pandemic-era lows below 1%. Instead, the best deals might settle around 3%, higher for those without significant deposits or equity.

Fixed mortgage prices are typically based on swap rates, which reflect long-term predictions of future Bank of England interest rate actions, and the mortgage market appears to have stabilized compared to the volatility of recent years, thanks to easing inflation.

Mortgage rates have become a political issue, with the Labour Party blaming former Prime Minister Liz Truss’s mini-Budget for the spike in rates. Interest rates rose after the mini-Budget in October 2022, dropped briefly, then climbed higher last summer due to Bank of England rate increases. Labour MP Pat McFadden criticized the rise, saying it added thousands of pounds to the cost of home ownership.

As always, J Finance is here to offer advice on the most suitable mortgage option for you, taking into account your specific personal circumstances, what works for a neighbour, or a colleague may not work for you, so advice is critical.