MORTGAGE brokers are divided on when rates will return to the levels they were at towards the end of February before war broke out in the Middle East.
While one said sub-4% rates could be back in 3-4 months, others believe the delayed inflationary impact of higher oil prices, two Monetary Policy Committee (MPC) members voting for a 0.25% hike this week and political uncertainty caused by a possible Labour leadership battle, could mean people have to wait far longer.
However, most agreed that the mortgage rates look set to continue to edge down in the weeks ahead.
Cautious optimism
Doug Miller, Director at Bath-based Lansdown Financial Services, said there is “cautious optimism within the broker market” at present.
He continued: “With the peace deal now signed, a number of high street lenders have already begun reducing mortgage rates. While rates remain above levels seen at the start of the year, they have eased from recent highs recorded only a few months ago.
“As swap rates continue to fall, there is scope — and increasingly an expectation — for further reductions from lenders in the weeks ahead.
“However, when or whether rates will return to pre-war levels remains highly uncertain. Borrowers should be cautious about assuming a swift return to those levels when making decisions around purchasing or remortgaging.
“No one can predict the future with certainty, even in more stable market conditions, but current indicators do point to improving sentiment and cautious optimism.”
Don’t hold your breath
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, is less convinced.
He said: “If you’re waiting for mortgage rates to slide back to their pre-conflict glory days just because a Middle East peace plan was muttered, you might want to settle in. My advice is don’t hold your breath. The ink isn’t dry on that agreement yet.”
Dhoffer also pointed to today’s rate decision that saw two members of the MPC vote for a 0.25% hike in rates following this week’s meeting.
He added: “The Bank of England is terrified of second-round inflation. The MPC just split 7–2 to hold rates at 3.75%, and the rebels wanted a hike, not a cut.
“Lenders won’t discount mortgages while policymakers are still debating whether to tighten the screws.
“Currently, two-year fixes sit a stubborn 80 basis points higher than pre-conflict levels. Late summer? Absolutely not. Christmas? Only if you mean Christmas 2027. For now, expect mortgage rates to stay higher for longer.”
Nouran Moustafa, Practice Principal at Roxton Wealth, said “pre-war mortgage rates by late summer or even Christmas feels too optimistic”.
She continued: “Rates may ease if the conflict calms, inflation keeps moving lower and swap rates settle, but borrowers should not expect a magic reset.
“The market has had a shock, and lenders do not reprice risk away overnight. Even when the immediate geopolitical fear fades, inflation expectations, energy costs, Bank of England caution and government borrowing concerns still sit in the background.
“My view is that we may see gradual improvement over the next six to twelve months, but not a return to the very cheap money people remember from before the war. Those rates belonged to a different economic environment.
“For borrowers, the sensible approach is to secure what is available, review early and improve the deal if pricing moves in their favour. Waiting for the old world to come back could be an expensive strategy.”
Andy Burnham
Meanwhile, Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said political uncertainty could play a role.
He continued: “We’re not likely to see a return to pre-war mortgage rates anytime soon, as Andy Burnham bashes down the doors to Number 10.
“Just as the war ends, so a leadership battle looks set to begin. So, stability is a little way off and rates won’t drop massively for a while.”
But others are more confident. Aaron Strutt, Product and Communications Director at London-based Trinity Financial, believes sub-4% rates could be back by the autumn.
He said: “Mortgage rates can change pretty quickly, especially when funding costs come down and the lenders want to issue more mortgages. If the Middle East peace plan works, then hopefully rates will keep getting better.
Sub-4% rate
“If you are being really optimistic, maybe we could have a sub-4% rate in three or four months. This is subject to the Bank of England base rate staying roughly the same and positive news on inflation.
“Barclays has just lowered the price of its mortgage rates so they are much closer to Nationwide’s best buy deals. The bank will have a 4.30% two-year fix (down from 4.39%) and a decent 4.43% five-year fix.
“Barclays has lowered its best five-year fix by 0.33% (it was 4.76%) which means there is a good saving for anyone planning to take this rate soon. The bank has also reduced many of the rates for those with smaller deposits.
“It also pulled its best buy 3.96% two-year tracker. Nationwide also has a 4.29% two year fix and a 4.34% five-year fix. Halifax still has its 3.96 tracker.”
Like many other brokers, Omer Mehmet, Managing Director at Welling-based Trinity Finance, said rates can be influenced by no end of factors but that, for now at least, things look a little more positive.
He added: “We’ve had a handful of cuts from lenders this week, which will create optimism about more reductions to come in the days and weeks ahead following the end of the war in the Middle East. It’s still early days but for now things are looking a little brighter for borrowers.”
