Will mortgage rates go down in 2023? What house buyers and those remortgaging need to know

Will mortgage rates go down in 2023? What house buyers and those remortgaging need to know

Last year was a turbulent one for mortgages, no more so than in the aftermath of then-Prime minister Liz Truss’ mini-Budget in September. While mortgage rates were already gradually rising due to high inflation, the surprise list of unfunded tax cuts sent the cost soaring.On 1 August 2022, the average two-year fixed mortgage rate across all deposit sizes was 2.52 per cent, according to data from Moneyfacts.The figure peaked at 6.65 per cent on 20 October with the five-year fixed rate at 6.51 per cent on the same day. However, average fixed rates for both two- and five-year mortgages have steadily fallen despite a string of base rate rises from the Bank of England in a bid to tackle the high level of inflation.  They are now at 5.78 per cent and 5.62 per cent, respectively.We look at whether mortgage rates will continue to fall this year, and what borrowers need to know.   Mortgage rates rose rapidly last year in the wake of the disastrous ‘mini-Budget’ in SeptemberFor those needing a mortgage, the increase in cost over the past few months has been significant. First-time buyers may find that getting approved for a mortgage is more difficult, as higher interest rates combine with the cost-of-living crisis and higher rents to putting additional pressure on household finances. Meanwhile, homeowners coming to the end of a fixed-term deal are likely to face increased mortgage rates that could add hundreds of pounds to their monthly payments.>> See how much a higher mortgage rate would add to your monthly payments What will happen to mortgage rates this year?Most experts now expect to see average mortgage rates settle at between 4 and 5 per cent this year. This is based on their assumption that inflation has peaked and the Bank of England will slow its base rate rises as a result.Although only tracker mortgage rates are directly affected by the base rate, increases are often passed on to customers by lenders affecting the overall cost of borrowing. There are also signs that the housing market is cooling off, which could lower mortgage rates because lenders will be competing to attract customers. Changing times: Volatility in the mortgage and property market has left borrowers uncertain Should people put off buying a home or moving?With fixed rate mortgages slowly decreasing in cost, those who are thinking of moving or buying or who need to remortgage may be tempted to leave it for as long as possible to potentially take advantage of lower rates.Rates have dropped steadily from the last quarter of 2022 into the New Year. On 1 November 2022 the average two-year fixed mortgage rate was 6.47 per cent, and it is now 5.78 per cent.It means someone agreeing a new £200,000 mortgage today would typically pay £85 less a month compared to someone fixing in November.  Rates outlook: Brokers expect mortgage rates to flatten in 2023 at between 4 -5%In an uncertain time, Vicki Harris, chief commercial officer at lender Kensington Mortgages, says it is important that borrowers get the right advice. This, she says, means consulting a broker who can look across the whole market and find the best deal for your personal circumstances.You can search the latest mortgage rates and get fee-free advice from This is Money’s broker partner, L&C, using our mortgage finder tool.  ‘Advice is key as an increasing number of borrowers may not fit the lending criteria of the high street banks and so may need to look at some of the more specialist options in the market,’ Harris says. ‘If you believe house prices are likely to fall in the coming months, then it may make sense to wait to see how the market evolves before making any big financial decisions.’It may also be worth exploring more flexible options to take advantage of lower rates. In low-rate environments such as those seen over the past two years, when rates went down to 0.1 per cent, getting a tracker rate wouldn’t be worth it as they were unlikely to drop.However, many tracker rates are currently cheaper than fixed deals and could present an opportunity for saving money, at least for borrowers that are comfortable with the idea of changing monthly payments. The average two year tracker rate is around 5.5 per cent and the five year is around 5.25 per cent.Borrowers would be wise to consult a broker, and find out whether they would be able to remortgage away without penalties if fixed rates became cheaper than their tracker. Will 5% and 10% mortgages still be available? As household finances continue to come under strain, there is a fear lenders will reduce the number of low-deposit mortgages on offer, and make their affordability criteria stricter. This happened at the beginning of the Covid pandemic, as banks became worried about the scale of potential job losses.  Mortgage lenders are still keen to do business, according to Redrow’s James Holmear However, experts say that many lenders will have already factored higher inflation into their affordability calculations.In addition, the Government has announced a year-long extension to its mortgage guarantee scheme where it backs 95 per cent loans in a bid to encourage banks to give them out. James Holmear, group sales director at housebuilder Redrow, says: ‘While interest rates and general cost of living may put pressure on borrowers lending power, the appetite for banks to write new business is still incredibly strong.’ What should you do if you need to remortgage?Half of UK homeowners are on a fixed rate mortgage ending within the next two years. While rates are now falling from their Autumn highs, many of these borrowers are still likely to see their monthly payments rise significantly – at a time when incomes are already stretched. The FCA has recently issued guidance for mortgage firms on supporting borrowers impacted by the rising cost of living.So what can you do if you need to get a new mortgage?Preparing it early is key, says Chris Sykes, technical director at mortgage broker Private Finance. ‘Lenders often let you agree a new rate months before yours is due to end and some have extended the window to six months ahead of your current deal ending rather than three,’ he says. ‘If rates improve closer to the end of your current deal you can change again, but it protects you if they rise,’ he says.  First time buyers may be reticent to make the jump but experts say its still a good investmentIt’s also important to make sure you have the right broker with access to as many lenders as possible, so you can get the best deal.>> What to do if you are struggling to afford your mortgage payments Brokers can also save you time by ensuring you don’t apply for a mortgage you aren’t eligible for. They get advance notice of changing rates and can access ‘intermediary-only’ deals that aren’t available if you go direct to a lender.What should first time buyers be thinking about? If you are an aspiring first time buyer and have been disheartened by developments in the property market such as increased rates and the end of Help to Buy, it is important to remember that there are still options out there.More so than ever it is important that first time buyers get the basics right, says Coulson. There are a growing number of mortgage products available and having a clear understanding of your options as well as your likely borrowing capacity will put you in the best position to make offers on properties from a strong position. ‘You need someone to just give you a few home truths and a broker does that and does that brilliantly,’ adds Jon Cooper, head of mortgage distribution at Aldermore Bank. It is also worth asking about what flexibility lenders have to accommodate your financial circumstances.’At Aldermore we can look at 40-year terms and have always been able to take into account multiple income streams for applicants as long as they’re plausibly sustainable – both of which can help from an affordability perspective.’If a borrower needs to lean into the Bank of Mum and Dad for help and support for a bigger deposit, we are also happy to accept a fully gifted deposit from a close relative,’ he adds. What to do if you need a mortgage  Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property valueWhat if I need to remortgage? Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.What if I am buying a home? Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.How to compare mortgage costs The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.> Check the best fixed rate mortgages you could apply for  Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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