Remortgage Lending Rates of Today Could Change by Tomorrow

Remortgage Lending Rates of Today Could Change by Tomorrow

The lending market is acting quickly with their new product offers, and they are not responding to the actions of the Bank of England’s Monetary Policy Committee (MPC). The standard base interest rate of 5.25% has remained steady since last year when votes in September, November, and December, the final MPC meetings of the year, resulted in a majority of votes to hold the current rate. Yet, interest rate offers from lenders on mortgages and remortgages have been getting lower and lower over the past few weeks with some lower than the base rate and reaching below 5.0%. The reason for the optimism in lending has been two-fold, one being the quick and steep decline of inflation in the final quarter of 2023, and the lack of demand from borrowers due to the higher cost of borrowing.

In 2023, inflation started in double digits and hovered near 7.0% during the summer with June reporting at 7.9%, July 6.8%, and at 6.7% in both August and September. In October, a steep decline occurred as inflation dropped to 4.6% and by November it was at 3.9%. It was edging closer to the Bank’s target rate of 2.0% and that brough optimism for the economy.

Borrowers were concentrating on the fifteen year high in the standard base interest rate of 5.25%. Inflation, though dropping, could take months to show improvement in a consumer’s household budget. With borrowing more expensive and house prices still elevated from the pandemic induced buying frenzy in the housing market, hopeful home buyers were stepping back or they were being pushed out of the market due to affordability issues.

Lenders began to lower their rates to gain the attention of borrowers, all the while feeling more confident as the risk in lending appeared to be less due to the decline in inflation. The inflation decline could be interpreted by some lenders as a signal the MPC had indeed reached the peak rate to bring inflation to target and would soon be lowering their base rate.

Rather than wait out for what might have been interpreted as a future rate cut by the MPC, lenders lowered their rates and indeed got the attention of borrowers. The first to respond strongly to the unexpected lower offers were homeowners seeking remortgages. In an effort to save money and avoid their lender’s SVR at the end of their expiring mortgage terms, remortgages became very popular.

In some cases, homeowners might have taken on a penalty fee to end their term early to remortgage at current rates due to the unexpected lower rates and because if they had recently remortgaged, they certainly could have been offered a savings over their current choice in a new deal. 

As demand grew from homeowners for remortgages and home buyers also were more interested in borrowing again, more and more lenders dropped their rates, and the lending competition grew.

However, as quickly as the rates dropped, they now seem to be disappearing. The reason for the change in the competitive lending environment is again inflation. The most recent report, which was for the 12 months to December, the rate had grown ever so slightly by 0.1% to 4.0%. While the increase is minimal in most respects, it would likely put experts in the mindset of seeing the MPC holding the rate steady at the first MPC meeting of 2024 on 1 February.

There are still some of the lower rates on the market still, but many lenders have pulled their lowest interest rate deals and are replacing them with higher ones. More are expected to follow the trend.

The growth of inflation is a strong signal that there is still an uncertain economic journey ahead and the MPC has strongly stated that they will not allow inflation to grow or to become stuck for a long time. If needed, they have stated, they will not hesitate to increase the rate again to keep inflation under control and headed downward toward target.

More so as a warning to borrowers than the indicator of the current activity of the inflation rate, is the quick response and actions of lenders to the risk in lending. Experts have warned borrowers should not get comfortable with the current unexpected lower rates as they could quickly go away as fast as they appeared. If a rate is favorable and could help one’s financial outlook, then it would be good to not hesitate to take advantage of the opportunity or they might miss out.

Therefore, since the current rates today could be gone tomorrow or even by end of day, experts encourage homeowners to shop for remortgages and for homeowners to seek out their best mortgage offers. Choosing a rate now versus next month after the next MPC meeting might offer substantial savings and one not to be seen again for a while.

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