What’s Been Happening to Mortgage Rates?
Mortgage rates have varied in recent weeks as lenders adjusted to shifts in swap rates—the costs they bear for mortgage lending. Some have raised rates, while others have decreased them to stay competitive within the mortgage market.
Impact of the Base Rate Reduction on Mortgages
Changes to the Bank’s Base Rate affect the interest you pay on loans, including mortgages. If you’re on a fixed-rate mortgage, your monthly payments will remain the same until your deal ends. For those with a tracker or variable-rate mortgage tied to the Base Rate, this reduction should translate into a decrease in monthly payments.
If your fixed-rate mortgage is nearing its end, now is an ideal time to explore options for your next deal.
A Mortgage in Principle will offer a more precise borrowing estimate and help prepare you for a formal mortgage application.
In July 2023, the Mortgage Charter was introduced to support borrowers nearing the end of their fixed rates. The Charter offers flexibility for borrowers, enabling them to secure a new deal up to six months before their current rate ends. You could also consider remortgaging with another lender, though this process takes longer due to additional steps like income verification and property valuation.
To avoid a shift to your lender’s Standard Variable Rate (SVR) at the end of your fixed term, review your options a few months in advance. SVRs are currently averaging 8.01%.
What This Base Rate Change Means for Affordability
Lenders use a “stress test” to determine if borrowers can afford their mortgages in the event of rising rates. This stress test is tied to the lender’s SVR, with at least 1% added. A reduction in SVRs following this Base Rate cut may improve affordability, as the “stressed rate” would now be lower than if the Base Rate had remained at 5%.
Looking Ahead
The Bank of England’s Monetary Policy Committee convenes every six weeks to review interest rates. Historically, rates have followed a period of flat stability after increasing before eventually declining. Though rates are beginning to drop, it’s unlikely we’ll see the ultra-low rates experienced in 2021.
Following the August reduction, markets anticipated a possible two additional cuts by the end of 2024. However, recent global developments suggest a more conservative approach, with today’s reduction possibly being the last for the year. A further decrease to around 4% is anticipated in 2025, likely achieved through three additional cuts over the next year, though future economic conditions could affect this.
The next interest rate announcement will be on 19 December 2024 at 12 pm. Crown Luxury Homes will continue to monitor the market closely to keep you informed.
