Plan Insurance Blog

Positive News For Borrowers: Mortgage Rates Are Falling

Bloomberg economist Niraj Shah has recently stated that mortgage rates are likely to fall slightly from recent highs. However, he says, they’re ‘likely to remain sticky’.

The good news is that mortgage rates will fall. The bad news is that thanks to upcoming hikes to the Bank of England’s benchmark lending rates, they likely won’t fall that far. Mortgage costs often reflect the central bank’s rate, The Bank of England is expected to continue raising its benchmark rate to bring inflation under control.

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What the experts say

The rise in mortgage rates in the last 2 months has led to the slowdown in the housing market. Though things are looking more positive for borrowers in 2023, most economists predict that mortgage rates are likely to settle between 4.5% and 5% by mid-2023.

There has been a widespread fall in house prices by up to 5%, and many expect that better mortgage rates will spark more buyers to move next year. Zoopla anticipates 1 million completed sales in 2023.

Will mortgage rates go back to zero?

After years of interest rates being at zero, experts believe homeowners need to get used to the new levels. Economist Niraj Shah says, “We may have to get used to a ‘new normal’ as we are unlikely to see the ultra-low interest rates we had all got used to. A whole generation hasn’t experienced this degree of tightening and will need to adapt to paying persistently higher rates”, hard truths there from Shah.

He says that we’ll now be lucky to find anything below 5%.

Future of the market in 2023

According to the Office for Budget Responsibility, borrowing costs are set to stay close to 5% until at least the first quarter of 2028.

Bank of England Governor Andrew Bailey said that fixed-term mortgage rates don’t necessarily need to go up as a result of base-rate hikes. Lenders, however, are likely to reflect rate decisions and expectations when setting their mortgage costs.

Buyers need to change strategies

It seems than buyers will need to find other ways to purchase homes without relying on mortgage finance. A 4.5% or 5% mortgage rate is still an increase in costs for the 7 in 10 buyers who use a mortgage. This is a huge contrast to the ultra low levels of the past.

Analysts believe that (as is normally the case) the market in 2023 will favour those who are more flexible or have more equity. Experts advise the rest of the population to wait to see if interest rates or house prices fall further in the year.

Current market measures, such as asking price reductions and buyer demand decreases, are pointing towards modest but widespread house price falls of up to 5% in 2023.

Most signs point to a period of normality

Quarterly house price growth is currently at the lowest level since February 2020. That being said, price corrections combined with steadying fixed mortgage rates will support the number of sales completed in 2023. This represents a return to a more normal housing market after 2 years of chaos thanks to the pandemic.

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