If you are about to take out a mortgage it may feel more like placing a bet than financing your home.
Whether you are buying your first home, moving to a new one or remortgaging you will be acutely aware that mortgage prices are on a rollercoaster which shows no sign of slowing down any time soon.
Mortgage rates soared in the summer of last year to an average of nearly 7% but thanks to some brusque price cutting in January they dropped to around 5.6%.
But hopes they might stay at this point, or go lower, were dashed when in February prices began inching up – and they have continued rising ever since.
Now it’s all very difficult to predict. And if you are about to take out a mortgage or remortgage then you will be in a quandary.
Do you wait in the hope prices may fall again, or just go for it in case they increase further? And if you do go for it, should you fix into a slightly more expensive two-year deal in the hope rates will fall in the next 24 months or lock into a five-year deal to pay less but risk missing out on any future interest rate cuts?
When will interest rates be cut?
This leads on nicely to the question of what will happen to interest rates this year?
Whilst the markets are pricing in a cut later this year – the question mark is over when it might happen. Some say it will happen in June others are plumping for August. One or two experts even say there may be an interest rate hike.
What we do know is that inflation is falling. The reason interest rates went up in the first place is because the Bank of England were raising them to bring down inflation. This has worked as inflation is now at 3.4% – close to the 2% target.
But it’s not quite there yet.
There’s another factor which influences mortgage prices – something called Swap rates. These are used by lenders to decide pricing and they are currently rising.
Pete Mugleston, managing director and mortgage expert at www.onlinemortgageadvisor.co.uk, said there were ‘promising signs’ rates would decrease in 2024 thanks to falling inflation. However, borrowers expecting the rock bottom interest rates experienced between 2020 and 2021 would be disappointed.
“While further declines in inflation could lead to even lower mortgage rates in the upcoming months,” he said, “it’s unlikely that we’ll see a return to the exceptionally low rates seen previously. It’s anticipated that rates may not dip below 4% until the latter part of 2024 or beyond.”
Borrowers – making the next move: What to do next
Keeping an eye on what is happening to inflation, interest rates and the wider economy is always a good idea when you are making a big financial decision. But with so much uncertainty it can muddy the water.
Gemma Bennett, a senior mortgage broker at The Mortgage Mum, said instead of trying to predict what might happen, it’s better to focus in instead on your own circumstances and goals.
“[It] really becomes a question of attitude and future plans – understanding your path of least stress,” she said.
“Focus on budget and future plans. This will help you make your decision.
“Don’t try to ‘play’ the market, but be authentic to your personal priorities and needs. A mortgage life span sees many ups and downs, you’ll experience both over the years. Try to understand that as normal and choose for you.”
David Hollingworth, associate director, communications at L&C Mortgages, agreed: “No one can know exactly what will happen with interest rates so it’s best for borrowers to think about what is most important to them rather than try to second guess what will happen to interest rates,” he said.
“We’ve already seen mortgage rates bobbling up and down as the markets try to predict what will happen at a time when there remains a good degree of uncertainty.
“Focusing more on what will give them the greater peace of mind and how well they would cope if rate moves don’t go as they hoped could help them decide on the best kind of product.”
Seek advice from a broker
It’s a good idea to seek advice from a mortgage broker if you are not sure what to do next. They cannot predict exactly what will happen to mortgage rates but they can help you find a solution which is suitable to your needs and situation.
You can speak to a mortgage broker even if you are not sure you are ready to take out a mortgage. So, if you just need guidance on whether your finances are suitable for homeownership or you just want some reassurance, it’s a good idea to make an appointment.