Mortgages.scot

Looking at various sites today the average fixed rate, 5-year deal is now hovering around 6%. Now to be fair, it wasn't that long ago that we saw it at this level. That was in November 2022, thanks Liz Truss for that mini budget! The 2-year fixed is now above 6%, which happened a few weeks back.

Broker view

Brokers do, however, suggest that borrowers can view the current average rates with less worry. There are still plenty of deals below the average rate out there. Fewer, certainly, but they are there.

Of course, the best deals are available to those that have larger deposits or in the case of refinance a sizeable chunk of equity in their property.

Whatever happens, brokers are not confident that rates are coming down in the short term. In fact, they expect them to reach 7% within the next couple of months.

Don't delay if within 6 months of your current deal

Most lenders will let borrowers secure a new deal up to 6-months before their current term ends. So there is an opportunity to lock in a good rate (based on today's market). It is always important to engage with a current lender or approach a broker with access to the wider market and can secure the most favourable terms.

Lenders' view

Lenders will continue to react to the market, in particular the cost of borrowing. It is important to note that lenders don't just rely on the Bank of England Base Rate when determining the products they are able to offer. Swap rates matter and as long as they stay high then mortgage rates will follow.

For example:

The 2-year swap rate 12 months ago was 2.58%, yesterday it was 5.87%.
The 5-year swap rate 12 months ago was 2.42%, yesterday it was 5.05%.

If that is confusing I will give a very brief explanation. SONIA stands for Sterling Overnight Index Average. It is an interest rate benchmark used in the UK for financial transactions. It's a calculation based on the actual overnight lending transactions between lenders.

A SWAP rate is a contract between two parties who agree to exchange interest rate payments over a specific period of time.

Take SONIA and Swap Rates and you have SONIA SWAP Rates which lenders use to price their mortgage products. It's quite complex and I would need a lot more time to explain this in a more detailed way but hopefully, you get the basic idea that mortgage rates are not as simple as the Base Rate set by the Bank of England.

I will do an article on all this soon.

The future outlook

Every time I end an article at the moment, in fact for over a year, I feel like a prophet of doom! But it's we are right now. Nothing is getting any better, that is the sad truth. The base rate is going up, Swap rates are going up, and inflation is not under control.

Right now the Government and Bank of England are focused on inflation. If it does come down or shudder it goes up then another interest hike, higher swap rates and higher mortgage rates are all we can expect.