Mortgage Market Update – May 2023 Review
Founder of Rose Capital Partners
Summer seems to be finally here, but it has bought with it not just red faces for us sun loving Brits, but also quite a few red faces within The Bank of England.
I’m not a fan of criticising anyone as a rule. As a wise man once said – let thee who is without sin cast the first stone – but the Bank of England have not covered themselves in glory in recent weeks. From statements like “Workers should refrain from asking for inflation-matching pay rises” Andrew Bailey Governor of the Bank of England (actually, as an employer, scrub that, seems a great idea to me…). To – British households and businesses “need to accept” they are poorer – the Bank of England’s chief economist, Huw Pill. That is also before you get to their very poor modelling of this current cycle of inflation. Constantly feeling that inflation will come down faster than it actually has.
It is the last point which is the most relevant one in our world, as out of touch statements from policy makers are certainly nothing new. Last week when the inflation data was released and it showed a still frighteningly high rate of 8.7% (remember that the target rate is 2%), this spooked markets and had a knock-on impact on mortgage pricing that has made much press this week. That will be the main focus of this update as it directly impacts mortgage rates:
When Will Rates Peak?
As alluded to above, as inflation hasn’t come down as quickly as the Bank of England predicted, money markets jumped up last week by around 0.5% as they now expect the Bank of England Base Rate to top out at 5% (+) in order to stem this cycle of inflation (see below figures and graph on Money Market data). We had felt we were about at the peak of this rate rising cycle this time last month, and hence we saw mortgage rates start to creep down, but now the opposite is true.
So now the debate is how high will rates go, and when? But even more crucially, how quickly will they come down again?
I can give you very good arguments as to why the base rate will stay above 4% for the next 10 years (as currently predicted by money markets) or why they will come down relatively quickly in the next 2 years to below 4% (which would involve a large recession in the UK). I found this extremely insightful videoof a conversation between Ray Dalio (self-made Billionaire, founder of the worlds largest Hedge Fund and author of one of the best books ever written – Principles) and Paul Volcker (former head of the Federal Reserve – the US Equivalent of the Bank of England) who talk about this classic dynamic in more detail. Well worth 4 minutes of your time if you are so inclined.
So what is the best mortgage product to take right now? As ever, the answer is – it depends! If you feel rates will go down quickly = go short term. If you feel inflation, and therefore interest rates will stay higher = fix for the longer term. The only product choice that is easy to rule out now is a variable rate unless you need a flexible/penalty free mortgage (in which case that is always a good idea if you wish to avoid penalties). It is more do you fix for 2 or 5 years as the table above would suggest (over 95% of the mortgages we arranged last month were on fixed rates). It also depends on lender pricing. As I write this, 5-year fixed rates look very good at present, but as lenders are increasing their pricing daily, that may not be my view by the end of June… To be continued… Oh for a Crystal Ball…
Money Market & Mortgage Rates
- 5 Year money up by 0.491% to 4.401%
- 2 Year money up by 0.5.17% to 4.955%
- 3 Month Sterling Libor up 0.201% to 4.619%
- UK Base Rate – up by 0.25% to 4.50%
Source: chathamfinancial.com
Market Leading Mortgage Rates:
- 2 Year Fixed Rates from 4.39% (previously 4.19%)
- 5 Year Fixed Rates from 4.05% (previously 3.90%)
- 10 Year Fixed Rates from 4.26% (previously 4.05%)
- Variable Rates from 3.99% (previously 3.99%)
- Buy To Let Rates from 3,.74% (previously 3.99%)
Source: Twenty7Tec – May 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.