Mortgage rates ‘at peak’ after mini-budget, say brokers
Mortgage rates have peaked and could start falling in the coming weeks after the UK government reversed much of its ‘mini’ budget in September, brokers said on Tuesday.
Interest rates on many fixed deals have risen to their highest levels since the 2008 financial crisis after UK government bonds were sold off in the wake of former Chancellor Kwasi Kwarteng’s £45 billion package of unfunded tax cuts.
The sharp rise in government bond yields forced lenders to withdraw home loans to new customers as the price had become difficult for them, and many would-be homeowners had to scramble to obtain a limited number of mortgages.
But brokers said on Tuesday that fixed-deal interest rates were “at an all-time high” and that lenders would start cutting them in the coming weeks after a rebound in the gilt market as the new chancellor reversed many of the tax cuts Jeremy Hunt had been raised.
“This week will be the peak for fixed rates,” said Ray Boulger, an analyst at mortgage broker John Charcol. “I think they’re going to start falling now. We can expect mortgage rate cuts over the next two to three weeks.”
Boulger added that Hunt’s October 31 announcement of a medium-term haircut plan was “important.” If the Chancellor maintains this tone, you can see the potential for yields to fall further.”
Andrew Montlake, chief executive of mortgage broker Coreco, said lenders could make bigger rate cuts after the Bank of England’s Monetary Policy Committee meets to vote on a rate hike in early November.
“I would be cautiously optimistic that the next few weeks will be the peak for fixed rates,” he said. “I think they will stay at this level until November.”
Montlake added that although gilt yields fell on Monday and Tuesday, some lenders hiked rates, in part to stem the surge in mortgage applications.
NatWest announced on Tuesday that it was raising interest rates on a number of home loans due to “recent volume of applications.”
Average two- and five-year fixed rates rose Tuesday to their highest levels since the 2008 financial crisis, according to data provider Moneyfacts. Two-year rates hit 6.53 percent, while five-year rates hit 6.36 percent.
“It can be a few weeks or a few months before [a fall] coming through,” said Simon Gammon, founder and managing partner of Knight Frank Finance. “We don’t expect rates to drop dramatically or see them going back to where they were.”
Co-operative Bank chief executive Nick Slape said stability in bond markets could lead to price declines and users as they consider mortgage refinancing.
“If prices go down, which they very well may, you may find that part of the pipeline is gone as consumers look for a better price,” he said.
Higher interest rates are already impacting the housing market, with developers and real estate agents pointing to signs of falling demand in recent weeks.
Jason Honeyman, head of FTSE 250 builder Bellway, said on Tuesday that demand for new homes has fallen by a third in recent weeks.
He said mortgage rates would not return to last year’s low levels, even after Hunt’s about-face in the government’s economic strategy.
According to Moneyfacts, the average rates for two-year and five-year fixed contracts in December 2021 were 2.34 percent and 2.65 percent, respectively.
https://www.ft.com/content/7aeb2dd6-a291-4947-865d-3a4441520210 Mortgage rates ‘at peak’ after mini-budget, say brokers