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Modest cuts to fixed mortgage rates are likely over the coming weeks, brokers and housing market analysts said, following positive inflation data and an upbeat outlook from the Bank of England.
Simon Gammon, managing partner at mortgage broker Knight Frank Finance, said the combination of lower than expected inflation figures and the BoE’s decision to hold rates firm — amid optimistic comments from the Bank — had added “stability” to the mortgage market.
“One major lender [NatWest] dropped its rates [on Wednesday] and we’d expect to see more of that during the coming fortnight. Any cuts will be fairly marginal, but it looks increasingly like borrowers won’t have to wait long before mortgage rates begin falling more meaningfully,” he said.
Mortgage rates had been rising since mid-February, as swap rates — which lenders use to price their fixed-rate deals — had been gradually increasing. But in the past week or so swap rates began dropping, and continued to do so in the wake of the BoE decision.
Ray Boulger, senior technical manager at broker John Charcol, said: “The movement we’ve seen in gilt yields and swap rates over the last week or so is going to give lenders scope to cut rates. We will see some rates start to come down.”
The risk to lenders that the BoE would take longer than expected to cut base rates had eased this week, according to Lucian Cook, residential research director at estate agent Savills. “That certainly means more stability in the mortgage market and the possibility that rates come down, which will add some power to the elbow of the housing market in terms of a continued recovery.”
Though the mortgage outlook was upbeat, he warned it would not lead to big changes in the continuing affordability barriers facing borrowers. Affordability is assessed using rates linked to the BoE base rate, which has yet to fall.
“It doesn’t hugely turn the dial,” Cook said. “What it does is give those people who can get hold of mortgage finance a bit more confidence to be able to do so. To see the range of buyers open up more substantially, you’re going to need to see the first [base] rate cut and then a more meaningful improvement in mortgage rates.”
As inflation has fallen — to an annual 3.4 per cent in February — the argument as to whether borrowers take a two- or five-year fix has moved in favour of the shorter term deal in anticipation that rates will fall further.
Purchasers with plenty of equity — borrowing no more than 60 per cent of the value of the property — can get a two-year fix with Barclays at 4.53 per cent. A five-year fix is available from Nationwide at 4.19 per cent.
The first signs of borrowers responding are likely to show up in mortgage approvals. These have already been on an upward trajectory, with mortgage approvals reaching 55,000 in January, up from 44,000 in September 2023. There is evidence, too, of growth in house prices, with Nationwide’s index for February recording prices up 1.2 per cent over the year.
The expectation that the BoE will cut rates this year is pushing borrowers towards shorter-term fixes, brokers said, so they could fix again at lower rates later this year or next year. The spread between rates on two-year and five-year fixes has recently narrowed, reducing the monthly savings to be made by choosing the longer-term, cheaper fix.
Adrian Anderson, director at broker Anderson Harris, said two-year fixes would allow more flexibility over the coming months. Rates on two-year deals are considerably lower than tracker rates. Five-year rates are marginally, though not “meaningfully”, lower, he said. “That’s why most people are opting for two-year fixes.”
