The UK will need 1.5mn more investing, economics and interest rate experts this year. That’s how many fixed-rate mortgage deals are going to expire in 2024, with a sharp rise in interest rates expected for most. Mortgage deals have become slightly cheaper in the past few weeks, in line with expectations that base rates will fall later this year. But it is this trend that makes decisions even harder than they were before.
Yes, financially speaking, those who were forced to remortgage at rates above 5 per cent and even 6 per cent have been hardest hit. But the decision-making process itself was relatively straightforward: their task was to simply find the best rate and lock it in as soon as they could.
Now deals are getting cheaper, but homeowners have a harder time deciding what will happen next. Even the market minutiae now matter. For example, in December there was much consternation among mortgage brokers as to why Halifax, the country’s largest lender, was not cutting rates along with rivals.
Some experts have suggested this is because Halifax is a lender that does not offer mortgage terms from the point of completion but from the point of application. On top of this, it only transfers products on the 1st of every month, and so had a significant amount of customers refinancing at the end of December. After transferring its existing book onto new (more expensive) deals, the bank duly cut rates on 2 January.
The wider point is that implications of delaying decisions could now be either positive or negative.
For instance, borrowers with a deal expiring on 31 December last year would have expected to lock into a two-year fix costing around 5.6 per cent. If they were remortgaging a £300,000 loan for two decades, they would have paid around £2,330 per month. Had they waited until 2 January, the same terms would come with a rate of 4.72 per cent, saving them roughly £180 per month, or £4,320 over two years.
The problem here is their deal expired in December, meaning they would have been pushed onto a standard variable rate (SVR) for January, around 3 percentage points above the base rate, and would have paid £2,700 in January before locking in the cheaper deal. Still, even with that factored in, they would have saved £3,950 over two years.
Most would never assume a month on a SVR is sensible with the base rate at 5.25 per cent, and that would be a fair thought. It’s also very unlikely a broker would recommend this, as it would be based on a hunch that deals will get cheaper, of which there’s no guarantee. If investors start rowing back on their expectations of base rate cuts, mortgage rates could conceivably creep up once again.
People’s incomes, their ability to afford their standard of living – in essence to fuel the economy – are now at the whim of the market. One wrong move costs hundreds of pounds a month, and one right move, even by accident, can save thousands.
Homeowners can no longer be passive. In a fluctuating market, knowledge is more important. Some of this is due diligence akin to that used when picking a stock or fund: knowing a lender's inner workings can pay big. But forecasting the future path of interest rates is a much harder, or even foolhardy, pursuit. The principles of active investing can now be applied to borrowing decisions, but making big macro calls is difficult in either case.
