Labour's first Budget, unveiled on 30th October included policies that would cost almost £70 billion, some of which is to be paid for by tax hikes and greater tax compliance, and some by government borrowing.
The Office for Budget Responsibility increased its inflation forecasts as a result. Government borrowing affects the economy, so that the cost of goods is not projected to come down to the Bank of England’s 2% target until 2029.
More inflation means less likelihood of rate cuts. Mortgages are long-term arrangements and require a long-term view of the costs. So, the view that interest rates will remain higher for longer may already be pushing up costs for lenders.
But on the first Thursday in November, the Bank’s Monetary Policy Committee voted 8-1 to cut interest rates to 4.75% from 5% and registered a cautious optimism about the economy.
So which way for mortgage rates? Up with the fallout from the budget, or down with the good news from the bank?
Costs have fallen
Mortgage rates have been tumbling during the summer and into the autumn - spurred on by the Bank reducing rates from 5.25% to 5%, the first rate cut since 2020 – back in August. Nationwide became the first major lender to offer a sub-4% deal since February when it unveiled a 3.99% five-year mortgage in July. Coventry Building Society, HSBC, Lloyds, NatWest, TSB and Virgin Money have also released sub-4% five-year rates.
But despite the cut in the Bank of England Base rate, those falls may be over. Some lenders including Coventry BS and TSB put rates up after the budget.
Homebuyers with mortgages that follow the base rate, such as trackers, will see an immediate fall in monthly repayments. But those with fixed-rate mortgages – who are already set to feel the impact when their current deal comes to an end – may not see much in the way of rate reduction if they remortgage.
Why are rates not falling further?
The problem is that mortgages, and particularly fixed rate mortgages, are priced on the anticipated future costs of cash on the money markets. The simple way to understand it is to consider that Banks and building societies actually need to borrow the money that they lend to borrowers – so they need to plan their mortgage offers, and particularly long-term fixed price offers, on the future cost of borrowing.
Some future rate cuts had already been priced into current mortgage deals, with two rate cuts expected in the last quarter of 2024. We have had one, but another is now looking less likely. Lenders are reconsidering their position, and some are pulling the deals they had started to advertise.
Mortgage lenders are being cautious about the future and whether this means no further reductions or actual increases remains to be seen.
What should you do?
If you are looking for a fixed-rate option, you might want to move quickly to secure a deal. The mortgage market is volatile, and some deals are being withdrawn with very little notice. The number of mortgage deals on offer has dipped in recent weeks.
Those on variable-rate mortgages, might be able to save by changing to a fixed rate – especially if rates are not likely to fall in the near future.
Whatever you want to do about your mortgage, you might be better off with some help from us at Continuum. Not only can we help you with the calculations you need, but we also have an up-to-the-minute view of the entire mortgage market. We can help you find and secure the deal that is appropriate for you.
But remember the market is volatile. Which makes it all the more important to seek expert advice. Why not call us today.
UK economy: Budget boost forecast to fade after two years, says OBR - BBC News
Bank of England cuts interest rates to 4.75%
Will mortgage rates fall further this year
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Mortgage products, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
