Fixed Rate Mortgage Rates Are Coming Down

Recent developments in the mortgage market are sparking optimism among prospective homeowners and current mortgage holders alike. Major lenders such as HSBC and Barclays have begun to reduce their fixed-rate mortgage deals, and many more are expected to follow suit. But what do these lowering rates mean for you, and how could they impact your buying or selling journey across Chandler’s Ford and Hampshire?

The Impact of Lower Mortgage Rates

Barclays has led the charge by cutting their rates by over 0.25% in some cases, encouraging competitors like HSBC to also reduce their fixed-rate mortgage offerings. This trend is largely attributed to recent improvements in money market swap rates, which have made it more affordable for banks to offer lower mortgage rates.

For many homeowners, these reducing rates bring a sense of relief, especially when paired with the UK’s inflation rate falling to its 2% target in May. The prospect of lower monthly mortgage payments is a welcome change after a period of economic uncertainty and high borrowing costs.

What Has Happened to Mortgage Rates?

The landscape of mortgage rates in the UK underwent a dramatic shift following Liz Truss’s mini-budget in September 2022, which led to many fixed-rate deals surpassing the 6% mark. This budget set off a series of economic challenges, including a stagnated British economy, a plummeting pound, worsened inflation, and skyrocketing mortgage rates. Homeowners and prospective buyers faced significant financial strain as borrowing costs soared.

However, as the graph below from MoneyFacts demonstrates, the mortgage market has been recovering rather well since the latter half of 2023, with fixed rate mortgages gradually reducing over time. The recent move by banks such as HSBC and Barclays will continue this trajectory of bringing fixed-rate mortgages down to more favourable rates. 

At the time of writing in July 2024, the average two-year fixed rate mortgage sits at 5.25%, whilst the average five-year fixed rate mortgage comes in at 4.88% based on 75% LTV. This represents a significant dip, even since the start of the year, making mortgage repayments the most affordable they have been in over a year.

What About Interest Rates?

Interest rates represent the cost of borrowing money, typically expressed as a percentage of the principal amount per year. Central banks, such as the Bank of England, set base interest rates to manage economic stability, aiming to control inflation and encourage growth. When interest rates are low, borrowing is cheaper, stimulating spending and investment; conversely, high rates can slow down an overheating economy by making loans more expensive.

With inflation now hitting its 2% target and major lenders cutting their fixed mortgage rates, attention has turned to interest rates. The Bank of England has held interest rates at 5.25% for the seventh consecutive time, but many speculate that a reduction to 5% could be on the horizon. In May, Ben Broadbent, the Bank’s deputy governor, suggested that a base rate reduction over the summer was possible, with strong indications pointing towards a potential decrease around August. If this happens, it could further ease borrowing costs and stimulate the housing market.

What Does This Mean for Buyers In Chandler’s Ford?

For homebuyers across Chandler’s Ford, lower mortgage costs mean reduced monthly payments and overall borrowing costs. This makes homeownership more accessible and affordable, encouraging more people to take out mortgages. Favorable interest rates also create a ripple effect in the broader property market. As borrowing becomes more affordable, more buyers enter the market, increasing competition and activity. This heightened demand can drive up house values, benefiting current homeowners looking to sell. However, budding homebuyers should perhaps expedite their search for a new property in anticipation of increased activity across the market as more people start to consider purchasing property whilst mortgage rates are favourable.

For example, the average property in Chandler’s Ford is £399,000 – if you took out a 2 year fixed rate mortgage at 5.25% over 25 years, you’d look to pay £2,391 back per month. A five-year fixed rate mortgage with a 75% LTV would result in monthly repayments of £2,305 over a 25 year repayment period.

Here at Rowe & Co, we are constantly reviewing the property market, analysing demand, home values, and the impact of other external factors on the way people buy and sell their homes across Chandler’s Ford and Hampshire. If you are curious about how these changes to fixed-rate mortgage deals and potential alterations to interest rates could impact your buying or selling journey, please do not hesitate to get in touch with our team.