Mortgage rates: welcome to the new normal

Sterling, swap rates and gilt yields all held relatively steady in the days following last week’s Autumn Statement. That’s good news for borrowers. 

Last Thursday, the morning of Chancellor Jeremy Hunt’s Autumn Statement, several lenders made interest rate cuts to swathes of their products.

Whether or not those cuts would prove temporary would depend on the reaction in financial markets to what was to follow. Thankfully for borrowers, much of the contents of the Autumn Statement had been trailed in the newspapers and there were few surprises. Sterling, swap rates and gilt yields all held relatively steady, paving the way for more lenders to make rate cuts.

The cheapest mortgage deals are now below 5% for the first time since the mini-budget. Those coming to the end of sub 2% deals are going to feel the pain when their interest payments more than double, but the likelihood of a prolonged period of deals well above 6% now looks very remote.

How far are headline mortgage rates likely to fall from here?

Not a great deal, if forecasts from the Office for Budget Responsibility are to be believed. The average mortgage rate paid by homeowners will peak at 5% in the second half of 2024 and will only ease to 4.6% by 2027, the OBR suggests. Headline rates will be lower, of course, but a mortgage rate starting with a four is likely to become the new normal and represent a good deal for some time to come.

In early November, shortly after the Bank of England hiked the base rate to 3%, our Managing Partner Simon Gammon suggested that those at the end of their product term, or those already on their lender’s Standard Variable Rate, should consider moving to penalty free trackers. That remains solid advice.

Doing so will enable borrowers to benefit from the current differential in tracker and fixed rate products while they wait for fixed deals to ease further. Moving to a fixed product might trigger a second arrangement fee, but in many cases that will be eclipsed by the savings.

Impact on landlords

There was more bad news for landlords in the Autumn Statement - the annual exemption for capital gains tax (CGT) will be cut from ￡12,300 to ￡3,000 from April 2024. That means anyone selling a second residential property will pay CGT on all gains above ￡3,000, which will disproportionately affect landlords of lower-value properties.

Conditions in the mortgage market are improving, however. Multiple buy-to-let lenders have returned to the market, and several have introduced innovative products to assist with affordability. That includes mortgages with deferred interest payments and products with variable rates and no early repayment charges.

Prime property markets

Finally, rates have eased particularly quickly for borrowers in prime property markets. While average mainstream rates are taking time to ease due to the nature by which high street lenders price their products, many private banks price individual deals directly from swap rates. That’s a boon for high-net-worth borrowers seeking to wrap up deals before Christmas. 

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