Mortgage Market Update – July 2023 Review
Founder of Rose Capital Partners
With the mortgage market being as exciting as Bazball, we have a lot to get our teeth into this month. Although without the bats, pads, crowds & questionable ethics of Australian wicket keeping, but you get the idea…
Have we reached peak inflation and therefore mortgage rates?
We are in for a very strange week, as the Bank of England look set to raise interest rates again on Thursday (by either 0.25% or 0.5%, my money is on the former) but yet Fixed Rate mortgages are coming down in price, why is this?
The answer is quite simple in that mortgage products are forward priced based on the expectation of where the Bank of England will move rates too. Until just a few weeks ago, we were expecting the Bank of England to top out at 6% in this cycle, but with lower-than-expected inflation figures released last month, that shifted sentiment that the Bank of England won’t get to 6%, but most likely around 5.5% now. Hence, fixed rates are now starting to fall even while the Bank of England are raising rates. The Money Market graph further down the email expresses that very well.
As I said directly in my email last month – is now the time to be brave on your choice of product? – well the answer to that question could well be yes. I suggested previously that Variable rate mortgages now start to look good value and if the base rate stays under 6% they are simply cheaper than the comparable fixed rate offering. The below chart shows that could be an emerging trend in the coming weeks. It will largely depend on how quickly fixed rates fall and/or inflation declines, but that is the no1 topic on product choice with our clients right now.
It seems we may have passed the peak of this inflation cycle, and with GDP now negative, do we really need to keep pushing up interest rates?
The very sharp rises we have seen in the base rate in the last 12 months are still yet to filter through the economy in full (as the majority of mortgage holders are still on fixed rates that have 2-3 years to run), and with around 60% of our inflation imported, are we just doing harm to the economy unnecessarily? I certainly do take that view, especially when you look at the impact it has had on the rental sector. Many landlords are selling up, which is pushing up rents to eye watering levels, that is if you can find a place to rent in the first place! That dynamic is due to a combination of the current tax treatment on rental properties and the ‘stress tests’ that lenders apply when granting loans, which means for some landlords holding onto the property simply isn’t viable anymore. A sorry state of affairs for what was always a corner pin of our economy.
However, as always that does present an opportunity. If you were to buy a rental property via a Limited Company and take a long-term view, you could well find that a great investment. Equally, if you are looking to move, now may be the opportune time while prices are soft. As interest rates fall, affordability eases, and the market gets a head of steam up, the lack of supply issue will rear its head again and no doubt bolster prices.
Fortune favours the brave as they say!
Money Market & Mortgage Rates
Money Market Rates:
- 5 Year money down by 0.263% to 4.738%
- 2 Year money down by 0.342% to 5.493%
- 3 Month Sterling Libor up 0.108% to 5.498%
- UK Base Rate – level at 5.00% (no meeting in July)
- Source: chathamfinancial.com & globalmarketrates.com
Market Leading Mortgage Rates:
- 2 Year Fixed Rates from 5.79% (previously 5.59%)
- 5 Year Fixed Rates from 5.25% (previously 4.99%)
- 10 Year Fixed Rates from 4.94% (previously 4.94%)
- Variable Rates from 5.04% (previously 4.24%)
- Buy To Let Rates from 4.39% (previously 4.89%)
Source: Twenty7Tec – July 2023 – The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Summary
Now more than ever, quality financial advice is needed. Not just to navigate the product options discussed above, but also the very tricky ‘affordability’ rules that lenders are imposing. This is how lenders determine how much they will lend you, which sways hugely on your income, outgoings, debts, commitments and spending patterns. Not all lenders look at things the same way, so that is why it is imperative you talk to an adviser who can find the best way forward for you.
So, if you do not currently work with us, we would love to talk to you and get you on the way to getting your mortgage paid off as soon as possible! We are acutely aware that no-one actually wants a mortgage, but you want what it achieves, so let’s help you on that journey as best as we can.
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This all ties in with our ultimate objective – getting you mortgage free faster – that is our goal and if that is yours also, please do engage with us so we can advise the best course of action for you