5% mortgage rates (again)

[Twiglets1]

Following on from the previous two of these threads both with 6% mortgage rates in the title, I think it's more realistic to return to 5% for this one.

According to this Rightmove article, the current average mortgage rate for a five-year fixed rate mortgage is 4.84%, up from 4.85% last week. The current average rate for a two-year fixed rate mortgage is 5.23%, which is unchanged from last week. The lowest available five-year fixed rate is 4.13%, and the lowest available two-year fixed rate is 4.46% – both unchanged from last week.

On 27th March, the average 5 year fixed rate mortgage for someone with a 60% LTV was 4.35%.
For someone with a 75% LTV it was 4.72% whereas 80% was 4.79%.

For someone with a 90% LTV it was 4.98% whereas 95% was 5.47%.

Two year fixed rate mortgages are slightly higher.

https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/

I'd say there is a very good chance that the Fed will cut at least once more this year, probably twice. They still have some leeway at current bond/gilt rates. Frankly, the governments need to cut because the current, crazy levels of debt are simply unaffordable at current rates. If the economy obviously deteriorates in the next 6-12 months, I can see rates going much lower quickly but that will be bearish for house prices, not bullish as some people seem to think.

This is Money: Interest rates will only fall to 3.75% next year, says Santander

Interest rates will fall to 3.75% by the end of next year, banking giant Santander has predicted, bucking a trend of bolder rate cut forecasts.
With the Bank of England base rate currently at 5 per cent, this would mean 1.25 percentage points worth of cuts by Christmas 2025.

Santander's forecast comes days after Goldman Sachs prediction that interest rates would fall to 2.75% over the same period raised eyebrows.

Looking further ahead, economists at Santander also believe UK interest rates will remain between 3% and 4% for the foreseeable future.

https://www.thisismoney.co.uk/money/mortgageshome/article-13991725/Interest-rates-fall-3-75-end-year-says-Santander-days-Goldman-Sachs-far-spicier-forecast.html

The US election is heavily screening unemployment statistics etc.

We have our own in the forthcoming budget. Largely priced in or Liz Truss moment in the gilt market? We shall see.

Lots of higher tax payers are leaving the country. Certainly not a recipe for growth in this country.

Rate cuts at this juncture by the Fed are very unlikely. Trump wins? They may let rip despite spiraling yields.

@Lightscribe I agree with most of that, just not the last point.
US stats definitely not accurate/ fully picture or quite possibly for pre election feel good factor.
I think we are heading into a global recession. The chances of the UK seeing growth are extremely low imo. For that reason, I think we will see bond market falls and rate cuts. Although once the QE restarts, we are very likely to get more inflation though. What happens to bond markets then could be interesting!

Mind you @Lightscribe, I now see reports of RR changing the rules on UK borrowing so perhaps we will see some major ructions with bonds next week!

'US stats definitely not accurate/ fully picture or quite possibly for pre election feel good factor.'

Meant to say quite possibly fiddled for pre election feel good factor.

Whatever happens exactly and when, it's looking even bleaker right now.

Any insights or guesses on how the Autumn budget will impact mortgage interest rates?

It won't help them come down. Initial reaction was towards higher rates than previously expected. US election so close as well, so don't take any notice of forecasts atm.

What @Lastwhisper said. Bond yields have risen in a number of countries, including the UK and the US in the past couple of months. They went up straight after the budget but may well come down to where they were pre budget soon. I don't think it will make a significant difference if the BOE does decide to cut or not in November.

i suggest some of the main lenders are hurting atm with their current mortgage offers and may not be able to hold them down for long.

Seems to be some fallout with the yields. Need to wait a few days for things to filter through, but this is a normal budget taking tax off working people and spending it on non economic activity such as the NHS and more government jobs.
We shall see, but a drop in interest rates looks a bit less likely now.

I don’t agree that a drop in interest rates is less likely in November.

But I do agree that interest rates over the next year or so may now fall slightly slower than was generally predicted pre Budget. They will still fall but possibly at a slower rate, from what I’ve read.

Also @HellsBalls , going off topic but the NHS being properly funded does benefit working people because without a functioning NHS they would have to continue to suffer a broken NHS or pay to go private.

I see proper funding of the NHS to be beneficial to everyone that uses it & people who can afford to should expect to pay more tax if they want it significantly improved.

OBR says rates will rise.

https://www.mortgagestrategy.co.uk/news/budget-2024-obr-lifts-forecast-for-mortgage-rates-and-house-prices/

However, the only forecast you can be sure will be accurate is that their forecasts will be wrong.

Well a healthy nation is obviously better for GDP, but whether or not pouring the billions into the NHS will produce any uptick is unlikely, as most NHS spending is on salaries and care of the elderly and illnesses that preclude employment anyway. So purely financially speaking, nothing will come of it.

Well it's easy to say that 'people who can afford to should expect to pay more tax' if you are not working or on a low income. Not directing that at you personally as I have no idea what your income is but it does tend to be something that people on lower incomes would say and take for granted.

I dare say the 30 something year old man or woman on 100k or so with a marginal tax rate of 70% or so due to a student loan and the loss of tax free childcare, who has had to out a large mortgage because property prices are so high and has seen his/ her repayments rise considerably because of IR rises, is paying through the nose for childcare for a couple of children, etc might feel that they are paying plenty of tax. Indeed, they may be trying to leave the UK altogether and who could blame them?!

Apart from that, just saying that NHS funding will rise without an extremely well thought out, long term plan will not help. Both Labour and Tories have simply been fire fighting/ kicking the can down the road and sneakily privatising via the back door rather than considering any long term planning at all. This government doesn't appear to be any different.

Sacrilege. How dare you question money being thrown at public top heavy institution with non-scalable framework and infrastructural decay. Bang your pots and pans every evening in reflection as punishment. Look at British Rail, it’s coming back after such a successful history!

Ok enough with the jibes. So yields are spiking, mortgage rates are going up as I previously stated.

www.thetimes.com/uk/politics/article/mortgage-rates-to-stay-high-until-2029-says-obr-vd337z8ps

https://www.standard.co.uk/news/politics/budget-mortgages-london-house-prices-rachel-reeves-labour-tax-borrow-invest-b1191042.html

The treasury market tells the real story, and the rest of the world doesn’t see the UK as investable integrating socialist policies which is why UK gilts are spiking.

Will we have rate cuts? Possibly if the US continues to cut. But it will be economic suicide with rising yields, and it won’t be passed on to mortgage rates hence the above.

Whether the BOE choose to reduce rates 0.25% at the next meeting doesn't matter too much. What matters for mortgage holders/ those wanting to take out new mortgage holders is what is going on in the gilt markets. Those have risen since the base rate cuts in the UK and US, around 50bp.

As I have said, I think the most likely scenario is slow base rate cuts but gilt yields stay elevated for a few months. Next year, I suspect that signs of a recession will become more visible and the gilt/ bond yields will fall, possibly dramatically. Then we could have big base rate cuts. I also think we are guaranteed to see a return to QE/ alternative QE at some point, probably next year and then inflation will take off big time again! Really, the central banks are completely stuck at this point.

I don’t agree that nothing will come of it, the money will partly be used to improve waiting lists and improve crumbling buildings, buy much needed new equipment etc. Though I do agree too much will probably get diverted into keeping very old people alive who have no quality of life or hope for improvement but that’s another topic in itself!

I just find it hypocritical @rainingsnoring when people attack the NHS ( admittedly it needs improvement in many areas) but don’t want to pay taxes to improve it.

This is not directed at anyone in particular, I find lots of people outside of Mumsnet expect amazing public services yet also want to pay low taxes. To me, that’s a contradiction and you can’t have great healthcare, childcare, schools etc without higher taxes.

I’ve paid taxes over the years of course and as a household we still do pay loads in tax. Don’t mind the idea of us paying extra tax if it would improve hospitals, schools, etc.

Yes, I see that point and agree that the NHS has been underfunded compared to other countries.

However, it's easy to say that 'people' should pay more tax if you don't actually work and pay tax yourself, especially if you are older and were able to purchase a home decades ago and are now a very heavy user of healthcare services. To the 30 something year old I mentioned, they may have simply had enough of paying an extremely high rate of tax but receiving shocking services. People in lower paid jobs pay very low tax in the UK but those on 100K or so pay shockingly high rates. Compare that with the really wealthy such as Sunak who was paying around 24% tax on his income overall as CGT is so much lower. The tax system needs reform and so does the NHS.

Yes I agree, but there’s one possibility you missed there. Stagflation.

The indicators are pointing to a global recession (and as I said next year will be the definitive point) now traditionally rates would have to come down in that scenario as demand drops and the market shores up in treasuries for a definite return.

But if the west returns to QE, with inflation embedded the faith in the bond market will start to crack (already has) which is why gold is doing what gold does and central bank purchases are at ATHs.

So will the central banks cut and print their way out of a recession? They could but against spiking yields will cause further inflation and currency would devalue very quickly.

At the end of the day the market believes inflation hasn’t gone away and the treasury market is bigger than the Fed and dictates monetary policy.

Agree the NHS needs reform @rainingsnoring but it also needs heavy investment as was sorely underfunded for years by the Tory Government.

I may not currently pay tax myself but you shouldn’t focus too much on that point because my views haven’t changed over the years and I held them when I was paying tax. Also my husband pays the higher rate of tax and so do other (young) people in my family - they all accept the need to pay higher taxes to get better public services which is what we want.

I take the point that it’s harder for people struggling financially to be altruistic about paying for services they don’t even use ( yet). However, I have friends who see things as I do politically despite different circumstances, so I think it’s related to your values as much as your income bracket or age.

Totally agree with all this and I think that stagflation is an extremely likely outcome. My opinion, and I could be totally wrong, is that we get the recession first and falls in bond yields next year, then the QE starts up and then we get long term stagflation. However, stagflation is also possible in the short term, lasting long term. Clearly the markets have no faith in central banks's ability too reduce inflation. That's what I meant by saying the central banks are completely stuck. They need to reduce rates but the market is not taking them seriously.
The risk of a run on the £ or other currencies seems high in the next few years, maybe sooner.

I think that's a very idealistic view @Twiglets1and I suspect that all these people who feel similarly to you are either older with no mortgage left/ tiny mortgages and/or have no children to support or receive £££ from their families. The reality is that most younger people are pretty stretched nowadays. If they work hard and earn very well, they are effectively punished by the tax system. With the cost of housing, the need for two salaries for most families, requiring high cost childcare, asking them to pay more tax is just unrealistic. The tax system is skewed very unfavourably towards higher earners, often well qualified and hard working people in their 30s/40s/early 50s and greatly benefits the very wealthy and older people. Low earners generally can't afford to pay much tax and don't under the current system.

The government should have introduced NI or higher tax on income for pensioners, including non-state pensions.
Just because people are retired should not mean they are entitled to absolutely free healthcare for another 20 to 30 years, while often sitting on, well living in, an asset worths hundreds of thousands.
It’s obvious the current funding model is unfair.