A new era for mortgage rates

Five-year fixed rate products drop below 4%, marking a new era for mortgage rates

Last week, some five-year fixed rate products dropped below 4% for the first time since the mini-budget.

HSBC’s decision to cut its five-year fix for those remortgaging to 3.99% marked the end of a volatile period that began with the September mini budget and peaked when average five-year fixed rates subsequently hit 6.5%.

We are likely entering a new, more stable era for mortgage rates. The average mortgage rate paid by homeowners is likely to sit at 4.6% as far out as 2027, according to projections from the Office for Budget Responsibility published in November.

The drop in mortgage rates has underpinned a shift in property market sentiment that began to show in the data early in the new year. The number of prospective buyers contacting agents rose 4% in the first two weeks of the year compared to the same period in 2019 and climbed 55% compared to the fortnight leading up to Christmas, according to Rightmove. Meanwhile, the January survey from IHS Markit revealed that household views on the current trajectory of house prices rebounded into positive territory following two consecutive contractions.

On Wednesday, Halifax reported that UK house prices stabilised in January following four monthly contractions. The flat reading brings annual growth to 1.9%, from 2.1% a month earlier.

We’ll know more about activity in the mortgage market on 1 March, when the Bank of England publishes official mortgage market figures for January. Though we expect them to be healthier than December’s figures, there remain meaningful numbers of borrowers waiting for rates to fall further, according to Hina Bhudia, Partner at Knight Frank Finance:

“There are certainly people sitting on their hands, which is understandable, and we may well see some more marginal cuts to mortgage rates during the weeks ahead.

“However, when you consider the base rate is now at 4%, and we’ll likely have another hike to 4.25% in March, that doesn’t leave a huge amount of room for lenders to bring rates down much further.”

Many five-year fixed rate products are now cheaper than two-year fixed products, which poses tricky questions for borrowers.

“A lot of people with uncertainty and those who don’t quite know when to fix are actually more interested in the shorter term deals,” Knight Frank Finance managing partner Simon Gammon told the FT last week.?

Unsure what’s right for you or have a client you think we could help? Speak to one of our expert advisors.?We have access to more than 200 lenders and can offer a comprehensive overview of the options.