Martin Lewis: What you need to know NOW about mortgage rates
Interest rates on fixed mortgage deals are expected to fall over the coming weeks, despite the Bank of England increasing the base rate to 4%. MoneySavingExpert.com's founder Martin Lewis explains what you need to know NOW about mortgage rates in the latest episode of ITV's The Martin Lewis Money Show Live. Watch the clip below or read on to find out more.
ITV's The Martin Lewis Money Show Live – Tuesday 7 February 2023
The clip above has been taken from The Martin Lewis Money Show on Tuesday 7 February 2023, with the permission of ITV Studios. All rights reserved. Watch the full episode on ITVX.
'Mortgage rates have gone up substantially since 2021'
Angellica Bell (Martin's co-presenter): "So we've got a tweet from Katie. She's asking: 'Are mortgage rates going down this year? My renewal is in October. I'm terrified of the new rates.'"
Martin Lewis: "I think it's time for another graph. So let's start. This is the Bank of England base rate. You'll see 18 months ago it was 0.1%, incredibly low, and then it's gone up by 10 consecutive rises, so it's now about 4% [see the graph below].
"Variable rate mortgages, standard variable rates, trackers, discount mortgages, they tend to follow [the base rate] as you'll see. They don't always move exactly in line - trackers do but the rest don't. This is the cheapest two-year tracker, you'll see the pattern is very similar. And it has gone up substantially.
"The difference in those rates is about £200 a month more that you would pay per £100,000 of mortgage. That's the scale of the rise we've seen there.
"Now, what's interesting, the team showed me before a clip of me talking about mortgages in October 2021, and I thought it was just fascinating. If we can just bring it up for a second.
Martin, talking in the video clip shown from October 2021, said: "There is a possibility, that in hindsight we will look back and many will say, if only I had sorted my mortgage in October , and I want to run through why.
"Currently, there are over 50 switchable deals below 1% interest. And historically, that's a staggeringly low rate. But you heard what I said about the Bank of England Governor earlier - and on the back of that the market consensus predicts UK interest rates are going to rise."
'It's cheaper to fix for a longer period of time than shorter'
Martin Lewis [in the studio on 7 February 2023]: "So it's interesting, isn't it? I mean, it almost seems ridiculous now to talk about mortgage rates below 1% when you'll be lucky if you get one starting at 4%; the very cheapest out there [at the time of broadcast].
"That was variable rates, but now I want to show you the pattern for fixed rates [see the graph below].
"So you've got three there: you've got the two-year fix in green, the light blue is the five-year fix, and the dark blue is the 10-year fix. Now what's interesting (is) these do not go in sync.
"Because fixed rates, new fixed rates - of course once you fix on your own mortgage, it's fixed, that's what the term means - but new fixed rates depend on the long-term prediction of interest rates.
"So they went up, then we had the mini-Budget when there was, you know, talk of economic cataclysm and everything going wrong - which massively saw mortgage rates shoot up.
"And since things have calmed down, so they've come down. Now, what you have to look at is back in last August/September, the cheapest two-year variable rate was almost half the cheapest two-year fix. But look, now we're at a point where it is parity.
"So there were some people who are going on those variable rates, and they were waiting to see, you know, when it will come back to then fix. In fact, we had a mortgage broker on the programme, we talked about it, he was suggesting to do just that. So we're in a very interesting position.
"Now, the other thing I want you to note is that the cheaper longer fix is the five- and 10-year, see the rates, it's cheaper to fix longer than shorter. It's what's called an inverted yield curve."
Martin to mortgage broker Andrew Montlake (known as 'Monty'): "Monty, (a) 10-year mortgage, would you go for one right now, long-term fixed?"
Andrew: "I think if you're definitely going to stay in the property for a long period of time, and you definitely want that security, then it's not a bad idea. What we find, in reality, is that actually a lot of people find 10 years a bit too long. I think a five-year fixed rate period, for most people, seems to be much more preferential, so they don't get stuck with repayment penalties and tie-ins."
'There's no rule to say mortgage rates should go back down as low as they once were'
Martin: "So only 10 years if you're absolutely sure, maybe if you're coming to the end of your deal and there's a relatively small amount left [on the mortgage] and you're going to stay in your house?".
Angellica: "We've got an email here from Kayleigh. She says: 'Our mortgage fixed rate is due to end in December, is it best to fix again or go onto a variable to see if the rates come down?'"
Martin: "Well, you phrase that quite well, and I'm going to ask the guys [the specialist panel] about what's going to happen to rates in a moment but, actually this just triggers a warning I want to give because I've been quite concerned over recent months by many people who have gotten in touch with me and say: 'I am doing this until rates go back to the cheap rates that we've had.'
"Now, I need to be very plain. If you're under 35, you might not realise that the rates that we've had since 2008, until last year, they weren't low.
"They were limbo-ing well below the prior 300-year historic lows for interest rates, we have lived through an anomaly time. So there is absolutely no rule that says things must go back to where they were. Now, I'm not saying they won't go back, I'm just saying there is no rule that they must - so do not assume and make a decision based on 'things will go back to where they were'."
'Mortgage rates could dip to 3% by the end of 2024'
"Now let's look. Andrew, a prediction for interest rates, if you can - what's the market consensus on where interest rates are gonna go?"
Panel member Andrew Wishart, a housing market analyst: "So the consensus is that we see about one more quarter percentage point hike and the Bank of England has been hinting that it might be getting towards the end of rises in interest rates. We think they'll probably stay at that level for the remainder of the year before being cut in 2024."
Martin: "End of 2024?"
Andrew: "We think they'll be down to 3% by the end of 2024."
Martin: "So they'll drop but they won't be going anywhere close to what they were before. And fixed rates Monty?"
Andrew Montlake: "Well, I think it's interesting looking at fixed rates because what you've seen at the moment is lenders now want to lend once more.
"It was cataclysmic at the end of last year, so a lot of lenders are going into this year with lower than normal pipeline. So actually, we're starting to see rates reduce, and swap rates and the cost of future funds have actually reduced quite considerably since that time. So now you're seeing the '3s' starting, I think this year, most people by the end of this year should be able to borrow with a 3% in front of it."
'The closer you are to the brink of your income, the more you should go for a fix'
Martin: "So variable or fixed right now, what do you think?"
Andrew: "Well, it depends on your circumstances, obviously, Martin. So actually, for those who don't want sleepless nights, then that insurance premium of taking a fixed is much more valuable than trying to play the market."
Martin: "You'll know, as we've discussed this before, my view on a fix is simple; the closer you are to the brink of your income, the more you want certainty, the more you should be hedging towards a fix and for longer.
"The more you can ride the markets, you might want to go with Andrew's prediction that interest rates will come down and you can go to a variable because that would be cheaper. If he's right, that would be cheaper but you have to be willing to take the risk."
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