Written by Martin Reynolds, CEO, Simplybiz Mortgages
Where mortgage rates are heading is probably discussed and commented on as often as we like to talk about the weather, or which is the best tea (it’s Yorkshire, if anyone is wondering!).
The challenge we face is that it is not an exact science, and there are now so many variable factors potentially affecting the price that predicting correctly is just as much luck as it is experience.
So, using my experience and hoping for a fair wind, I have outlined below my views and what may cause me to be totally incorrect.
Moneyfacts has recently released its latest Treasury Report, which stated that the average two and five-year fixed mortgage rates had increased for the first time in eight months. Why would this be the case when all economists are predicting Bank of England Base Rate (Base Rate) to keep dropping? There are several reasons, but the key one is that yes, we do expect Base Rate to reduce from its current 4% down towards 3.50% by the end of 2026, however this does not mean a straight linear reduction of mortgage rates at the same time. There are many factors that will influence this in the short term.
The Bank of England meets every six weeks to review Base Rate with the next meeting planned for the 6th of November. At this meeting, they review all the economic data available, plus feedback from all their regional teams who meet business owners across the country. It is from this data – and against the backdrop of the aim to hit an inflation rate of 2% – that the Base Rate is set. Many economists are predicting the next reduction in February 2026, with the final cut late summer next year.
What we are seeing in the short term with the average rates increasing is a combination of both macroeconomic plays plus micro mortgage market decisions. For a large proportion of this year, the top six high street lenders have been very aggressive with their mortgage pricing which has helped rates reduce and stabilise at a level that has not fully reflected the price of swaps. Many lenders have been running on reduced margins, which is not a long-term strategy but a short-term play to ensure they receive the levels of business they require. Over the past few weeks, we have seen many of these lenders start to increase their pricing and reduce their volumes. However, whilst this has increased the average price, there are still some lenders that have taken this opportunity to reduce their pricing to pick up the slack for the high street lenders. Also, as with all trends, there is a range of data that creates the average and, at certain LTV bandings, rates are lower or being held, which shows that the role of a mortgage adviser is key when clients are looking to borrow.
Outside of the mortgage market, there is nervousness as to what the Budget holds both for the industry itself and us as individuals in relation to any potential tax changes. This has made the money markets a little nervous, which does affect swap rates. Alongside this are the normal economic indicators which can make people nervous, such as rising unemployment levels, rising energy costs, and the instability in many countries at present. All this can affect not just the swap market but also clients’ thought processes when they consider when to buy a new property or expand their current one.
So, how can the mortgage adviser ensure that they remain at the centre of this process? In my view, advice has never been more important, and data shows that for new loans since the covid pandemic, the intermediary share has risen from mid-70% to getting close to 90% this year. Clients want to ensure they are making the right decision. Yes, they may do more research online than previously but, ultimately, they want reassurance. As an industry, we can get confused at what is happening with rates so imagine how a client who only enters our world every two or five years feels, especially when the information they get from MSM can be a little light on balance. I do not think you can over communicate to your clients if the content is relevant. Keeping in touch with your clients during the period of the fixed rate is imperative, and not all communication needs to be a sales plug, just proving them with thought leadership on what is happening in the market can ensure that they remain loyal to you.
