Mortgage Market Update – April 2023 Review

Focusing on the traditional levers of the mortgage industry which are – House Prices and Inflation – it is worth looking at how they interact and why I feel taking a fixed rate is probably the best option for most people right now. The million-dollar question is for how long? As we may all need to adjust to the Bank of England keeping their base rate around 4% as a new ‘norm’ (in that – how much above or below 4% are we as a barometer of cheap or expensive)

As you can see in the below table, Fixed Rate mortgages have gone back to being the lion’s share of products we recommended last month. A fraction over 90% of all mortgages in fact. The reason for this is very apparent – with the inflation data that came out in April, which is remaining stubbornly high at over 10%, that will keep the Bank of England pushing their agenda of rate rises to quell demand and therefore inflation. So far so simple. The big question is what happens next.

I can give you equally good arguments about why interest rates will stay around 4% for the next 4-5 years, and why they may fall back sharply from 2024 onwards. As this fall very much into crystal ball territory, I therefore lean on money market data which is the best gauge we have (see below). On current expectations, the base rate won’t dip below 4% for another 4-5 years. If that is true, the current batch of market leading 5-year fixed rates which start with a ‘3’, look very good indeed. In fact, this week we have seen the market leading rate replaced 3 times as lenders are increasing their pricing in this area. Always a sign market expectation has shifted. However, if you feel rates will fall faster than expected next year and beyond, then gambling on a 2-year fixed will work for you. Most Tracker rates don’t look great value at present as they are more expensive than fixed rates and set to go higher. Unless you want the flexibility of a penalty free mortgage, that is probably one to avoid for now. 

A quick note on the relationship to mortgage lending and house prices, which may not directly impact pricing, it certainly impacts availability of mortgages which is far more important.

Some lenders have been more conservative this year with their lending policy (which means offering smaller loans) on the expectation that house prices will fall and rates will rise (which they have). But it is interesting to note that Nationwide, one of the largest lenders in the UK, believe that house went up by 0.5% last month. With suppressed stock levels and increased demand, this could well be the low point of this current cycle. If house prices do move up from here, we could be past the point at which you expect to get a ‘deal’ on a property, and lenders loosen the purse strings, which just increases demand as mortgages become more available. The point is – if you were waiting for a house price crash, you are going to be disappointed and now the best time to take advantage of the market is now!

So as ever, your personal situation and views on rates will drive the outcome of what is best for you, but these are the main things you should be thinking about right now if you are looking to arrange your mortgage.

Money Market & Mortgage Rates