Finance | Autumn 2023

Since the last edition, the mortgage market has taken yet another interesting path! We have seen another round of, quick-fire, rate rises. With the UK Inflation data taking much longer to slow down, the Bank of England was left with no alternative but to keep increasing Base Rate. As of writing, Base Rate is 5.25% and CPI Inflation stands at 7.9%.

The last inflation report came in slightly better than the “markets” were predicting. Now the consensus is that Base Rate will not reach the earlier prediction of 6.5%.

The last inflation report came in slightly better than the “markets” were predicting. Now the consensus is that Base Rate will not reach the earlier prediction of 6.5%, with the International Monetary Fund forecasting the UK will no longer go into a recession and see a small amount of growth. The mortgage market is being very reactionary to the base rate decisions and inflation reports, so the banks are left with no choice but to move as quickly.

With the lower than expected rate rise, mortgage lenders have started to reduce their fixed rate mortgages.

This impacts consumers as rates are withdrawn with less than 24hrs notice (as low as 2-3 hours in some cases!) and higher rates have come in.

With the lower than expected rate rise, mortgage lenders have started to reduce their fixed rate mortgages. Since the inflation data was announced in Mid July, there have already been quite a few banks dropping the price of their fixed rate mortgages. Unfortunately not by the amounts that they increased by in the last round of data but it is a start. There is a chance, that at some point in late 2023 or early 2024 that we see cost of borrowing for fixed rate fall below the base rate. It has happened in the past (pre credit crunch) and may happen again.

With the normalising of increased borrowing costs, our role as advisers is to help clients manage that cost into their monthly budget and see how to best help. This may include; increasing the term of the mortgage, putting some/all of the loan on interest only, working out an overpayment structure to start to pay down the mortgage or using liquid savings to offset the mortgage. Also, clients need to be aware of the impact on borrowing amounts that the increase in Base Rate has. Most people assume an income multiple of around 4.5 times income but with banks affordability based models, the variance in lender amounts offered has increased. Some banks have taken a much more conservative approach to cost of living increases and this has impacted their borrowing levels. Others seems less affected and can still get to the higher income multiple levels (5 times/5.5 times).

There is a chance, that at some point in late 2023 or early 2024 that we see cost of borrowing for fixed rate fall below the base rate.

There are always caveats to these approaches, so the advice side of the role is more important now than ever. A proactive approach is needed in a volatile market place, so my advice would be to start looking at the mortgage sooner than normal.