Britain’s mortgage market is “warming up” but some homeowners still face a painful rise in their monthly costs when deals expire this year, experts said.
Moneyfacts, the financial information service, said the average cost of a two-year deal had fallen from 5.92 per cent to 5.87 per cent, the lowest level in almost seven years.
It comes amid optimism in the City that the Bank of England will begin cutting interest rates in the spring as inflation continues to fall, making it cheaper to borrow money.
In December, inflation returned to its lowest level in more than two years, and falling gasoline prices helped cause a larger-than-expected drop. The Office for National Statistics said the Consumer Price Index inflation rate fell to 3.9 per cent in November, down from 4.6 per cent in October, and the lowest level since September 2021.
Most economists expected inflation to fall to 4.3 percent.
Despite the improving economic outlook, the Bank of England, which was criticized in some quarters for failing to tackle rampant inflation more quickly, voted to keep interest rates at a 15-year high of 5.25 percent. cent for the third consecutive time. The Bank’s monetary policy committee is scheduled to meet again on February 1 to make another decision on interest rates.
City analysts expect the Bank to begin cutting rates in the spring, and some economists predict they could fall as low as 3 percent by the end of 2024, sparking market optimism.
But while mortgage rates have begun to fall, they remain much higher than people have been accustomed to in recent years, and more than a million homeowners expect an increase in their monthly payments when agreements expire this year.
“The mortgage market may be heating up, but this will not completely ease the pain for the estimated 1.6 million existing borrowers with cheap fixed rate deals expiring this year,” explained Alice Haine, personal finance analyst at Bestinvest.
City analysts expect the Bank to start cutting rates in spring
(PA Wire)
“They still face a sharp increase in interest payments when they switch to a new product, with the only consolation being that the situation could have been much worse,” he added.
Lenders have priced in that the Bank will begin cutting interest rates this year and have been cutting their prices for months ahead of an expected price war as the economic outlook improves further this year.
Workers have also been boosted recently by the government’s decision to cut national insurance contributions after raising the tax burden to the highest level in decades.
First Direct has announced rate cuts across its range of fixed-rate repayment mortgages, with offers below 4 per cent becoming available from Friday. The announcement followed rate cuts by other lenders this week, including HSBC UK and Halifax.
HSBC’s new rates came into effect from Thursday and included a five-year rate of 3.94 per cent for remortgaging customers who borrow up to 60 per cent of the property value.
Halifax kicked off 2024 by cutting its fixed mortgage rates by almost 1 per cent on Tuesday.
By reducing its rates on its two, five and ten-year fixed agreements by up to 0.83 per cent, the building society also reduced rates by up to 0.92 per cent for its existing customers.
As part of its revamp, First Direct will launch two 3.99 per cent products from Friday.
Bank of England expected to cut interest rates in spring
(Getty Images/iStockphoto)
They include a 10-year fixed mortgage for people with a 40 per cent deposit, with a rate of 3.99 per cent, reduced by 0.98 percentage points from 4.97 per cent previously.
Also for people with a 40 per cent deposit, First Direct will offer a five-year fixed mortgage priced at 3.99 per cent, a rate which will be reduced by 0.65 percentage points.
Rates will be available to new and existing customers.
Between its two- and three-year fixed rates, First Direct said standard fixed mortgages for people with at least a 15 per cent deposit will be priced below 5 per cent, with a range starting at 4.54 per cent. for new customers and 4.49 percent for new customers. for switches.
For people with a 10 per cent deposit, offers will start at 4.69 per cent on First Direct’s standard five-year fixed mortgage.
Analysts expected rates to continue falling later this year. Polly Gilbert, marketing director at Tembo mortgage brokers, said it was “likely” a mortgage price was on the horizon as inflation and interest rates fell.
“It’s good to see interest rates finally moving in the right direction,” he told Sky News. “We’re seeing some frenzy starting to build, and this time it’s positive.”
Separate figures released by the Bank on Thursday showed UK mortgage approvals rose in November, while credit card lending doubled to £1bn.
Mortgage approvals for home purchases – an indicator of future borrowing – rose to 50,100 in November from 47,900 in October, while remortgage approvals rose to 27,000 from 24,000.
Although approvals rose to their highest level since June, they remained below the long-term average.
