MORTGAGE rates have been coming down over the past week or two in good news for borrowers, with a raft of major lenders, from the Nationwide and Halifax to TSB and Santander making reductions, in some cases quite chunky ones.
But with the situation in the Middle East still volatile and inflation rising to 3.3% last week, there’s every chance rates could rise again, especially if the Bank of England proves hawkish at this week’s interest rate decision.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, described the situation borrowers are in as a “limbo”, as it’s hard to know which way rates are headed. However, one broker said that, ultimately, it’s always that way while another said borrowers are by no means “helpless”.
Springall said: “Borrowers have been left in limbo as it is difficult to know whether they should rush to lock into a fixed deal or wait and see if lenders make more sizeable cuts.”
She continued that lenders’ pricing of mortgages could go both ways given the volatility of swap rates and added: “Lenders will be watching the decision by the Monetary Policy Committee (MPC) very closely, as it would be unwise to price deals too low in the short-term, so they will react if swap rates start rising significantly again.
“Base rate tracker mortgages currently look attractive but could be a gamble if interest rates rise this year, so choosing a deal with no early repayment charge (ERC) would be wise.
“Until the market sees more stability, there is very little scope for lenders to drop rates substantially due to the prolonged unrest in the Middle East. Any borrower concerned about securing a mortgage would be wise to seek advice from a broker to navigate the mortgage maze.”
ERC-free trackers
Omer Mehmet, Managing Director at Welling-based Trinity Finance, said: “It’s a difficult time for borrowers, without a doubt. Many will be looking at the rate cuts of the past week or so and wondering whether they’ll continue.
“If you’re in the early stages of a house purchase or are not due to remortgage for another few months or so, the good news is that you can lock into a rate now and, if rates come down materially before the transaction takes place, potentially switch to a lower rate whether with the same or another lender.
“Some people are also considering an ERC-free tracker, as that way they can get a slightly cheaper rate today and then lock into a fixed rate if it looks like rates will go up.”
Craig Fish, Director at London-based Lodestone Mortgages, said that while borrowers may indeed be in a limbo, they’re not all at sea.
He said: “The ‘limbo’ framing is understandable, but I’d push back slightly on the idea that borrowers are helpless. The honest answer is that nobody knows where rates go from here, not lenders, not economists, not the Bank of England.
“So the right strategy isn’t about predicting the market, it’s about understanding your own circumstances. If certainty matters to you, your job, your family, your finances, fix now and sleep at night.
“If you have genuine flexibility and can absorb a rate move upward, then yes, an ERC-free tracker gives you optionality without penalty.
“We are seeing more borrowers asking about trackers, and in some cases we’re recommending them. But it’s not a one-size-fits-all answer. Luck doesn’t come into it if you make the decision that fits your life.”
Crystal ball
Shaun Sturgess, Director at Swansea-based Sturgess Mortgage Solutions, said that “technically speaking, borrowers are always in limbo, as each time they make a decision whether to lock into a fixed rate or go for a tracker, the future trajectory of mortgage rates could make their decision the right one or, in theory, the wrong one”.
He continued: “But that’s the benefit of hindsight and none of us have a crystal ball. The right decision for any borrower ultimately is the one they make that meets their risk profile and unique circumstances at that particular time, which is a decision a good broker will help them arrive at.”
Like Mehmet, Katy Eatenton, Mortgage & Protection Specialist at St Albans-based Lifetime Wealth Management, said borrowers can always secure a rate and then, if mortgage rates drop further, potentially switch to an even lower rate.
She said: “Borrowers can hedge their bets by locking into a rate now and, if rates continue to fall, switch to a lower rate before they complete. At least that way they are protected in the event that rates start to rise again, which is a very real possibility in the current uncertain market.”
