The trend of fixed rates being lower than the base rate looks set to continue for the foreseeable future, according to industry experts. Despite Barclays recently stating their expectation of a base rate rise to 4.5% in May, swap rates remain considerably lower. This is positive news for homeowners as it means fixed rates could remain lower than the base rate for some time to come.
This trend is having an impact on remortgaging levels, with more clients looking to review their options and home movers back on the property hunt. The market has slowly recovered from the negative impact of the autumn mini-budget, which caused rates of 6% and an expectation of a 10 to 20% dip in property prices in 2023. Since the start of the year, fixed rates have fallen to more reasonable levels, and homeowners now feel more confident about reviewing their mortgages.
According to Nicholas Mendes, our Mortgage Technical Manager here at John Charcol, this trend is impacting remortgaging levels. As Nick says:
“With lower lending volumes expected for 2023 and swaps at a healthy level, we could see lenders competing for business again as they look to capture as much of the market as possible. Since the start of the year, there has been an increase in clients now looking to review their remortgage options, as well as home movers back on the property hunt.”
Fixed rates are a type of interest rate that remains the same for a set period, regardless of any changes in the base rate set by the central bank. In the context of mortgages, fixed rates are an option where the borrower pays the same interest rate on their mortgage for a fixed period of time, typically between 2 and 10 years. This provides borrowers with greater stability and certainty, as they can plan and budget for their mortgage payments without worrying about any unexpected increases in their monthly payments due to fluctuations in interest rates. Fixed rates are usually higher than variable rates when they are initially set, but they offer protection against interest rate hikes in the future.
The number of mortgage applications has risen significantly in recent months, with a 36% increase recorded between January and February. Despite 5-year fixed rates being cheaper than 2-year fixes, the majority of clients are opting for the latter.
Will the base rate change?
While it is unlikely that we will see rates return to the below 2% levels of the past anytime soon, experts predict that rates will continue to decline over the next few years. Choosing a 2-year fixed rate offers stability and the opportunity to re-evaluate options, rather than being tied to a higher rate over a longer period. However, any decision ultimately comes down to individual circumstances.
Overall, the trend of fixed rates being lower than the base rate looks set to continue, which is good news for homeowners looking to remortgage or purchase a property. With lenders expected to compete for business, there could be some great deals available for those looking to take advantage of the current market conditions. As always, it is important to review all options carefully and seek professional advice before making any financial decisions.
Hernaldo Turrillo is a writer and author specialised in innovation, AI, DLT, SMEs, trading, investing and new trends in technology and business. He has been working for ztudium group since 2017. He is the editor of openbusinesscouncil.org, tradersdna.com, hedgethink.com, and writes regularly for intelligenthq.com, socialmediacouncil.eu. Hernaldo was born in Spain and finally settled in London, United Kingdom, after a few years of personal growth. Hernaldo finished his Journalism bachelor degree in the University of Seville, Spain, and began working as reporter in the newspaper, Europa Sur, writing about Politics and Society. He also worked as community manager and marketing advisor in Los Barrios, Spain. Innovation, technology, politics and economy are his main interests, with special focus on new trends and ethical projects. He enjoys finding himself getting lost in words, explaining what he understands from the world and helping others. Besides a journalist he is also a thinker and proactive in digital transformation strategies. Knowledge and ideas have no limits.