HOM-B
The Base Rate fell last week… so why are mortgages getting more expensive? What do property buyers and sellers in Richmond, Twickenham or Teddington need to consider?
HOM-B
The Monetary Policy Committee met on November 7th, voting by 8-1 to cut the Bank of England Base Rate by 0.25%, to 4.75%. This was following their decision to do the same just this August, cutting them from 5.25% to 5% - meaning a half percent reduction in the Base Rate in just a three month period.
It was a move that many assumed would herald a boost to a beleaguered property market, with mortgage rates bound to be following the base rate downwards. After all, it’s what happens, right? When the base rate went up and up, and up some more, from December 2021, mortgage rates tracked higher and higher and higher along with it – the average 2 year fixed rate reaching 5.65%, with plenty being higher than that. Nevertheless we have recently seen (and reported) news that mortgage rates had dropped a little over the past four or five months, as banks and other lenders started to gamble on longer term interest rates coming down.
Why then has lender after lender this week announced that their product rates are going up, including the likes of Santander, HSBC, TSB and Nationwide? Surely, if the Base Rate is heading downwards, mortgage rates should follow?
It is a situation that leaves many borrowers perplexed, but the reality of mortgage markets is that the pricing of fixed rate products is more complex than simply looking at the Base Rate in isolation.
Several factors are currently at play which has led to a slight increase in fixed rates from so many lenders this week. The Labour Budget on October 30th is not unfairly blamed here – it has had an impact, and that is not a political statement. Admittedly the fallout is not anywhere as drastic as that of the Truss era mini-budget, but nevertheless markets have been spooked, with gilt yields rising and swap rates following suit, factoring in the likelihood of higher future fiscal borrowing, as well as higher inflation than had been forecast before the Budget, caused by increases in National Insurance for employers who will pass their extra costs on to the consumer by raising prices, whilst also cutting staff hours, freezing pay rises and perhaps making redundancies – some of which have already borne out.
Not only this, but markets in general also react to geopolitical events – the US election, for example, heightened tensions in the Middle East and Ukraine, floods and other natural disaster events in parts of the world that produce the food we consume.
Essentially, taking all these factors into account, even considering a reduced Base Rate, banks and lenders are forecasting a bit of pain and turbulence and are pricing up in order to cover themselves and to protect their own debt and their ability to repay it. The effect as far as the Richmond property market is concerned is higher mortgage rates for a little longer than hoped.
The key thing to note is that there is no need to panic. These increases to mortgage rates are still marginal, and might well stay that way. What’s more, RICS members are reporting higher new buyer enquiries in October, 12% up on the previous month, with sales numbers following suit – so currently a positive market reality for this time of year.
If you have a remortgage pending in the next six months, it is sensible advice to fix a rate now, in case rates do increase further – knowing that you will always be able to amend that before time, if rates do take a drop downwards again.
Fortunately, at the coal face in Richmond, Twickenham and Teddington, and in line with the RICS reporting, we are not seeing any significant drop off in market activity, from an estate agency perspective – things look stable and largely positive considering that we are only six weeks from Christmas. We achieved an asking price offer for a client of ours just this week, and that being from a first time buyer. The activity and the results are still out there.
Yes, it is disappointing to see mortgage rates tick up slightly, but in real terms it is amounting to only a few pounds extra per month at the moment – often not even in the low hundreds – and is not preventing buyers from making their moves.
Don’t ignore the headlines – we wouldn’t say that… but do qualify the reality with a local Richmond property market expert before making life altering decisions – that is always sensible advice.
HOM-F