Likely mortgage rates by mid 2023?

horatio30

I’m wondering if anyone has an informed view of what a typical 5yr fixed mortgage rate is likely to be come summer/autumn 2023 (based on a 60% LTV). 

My current deal is 2.09%, fixed until October 2023. I’m concerned if rates do hit 5-6%+ then it will add several hundred pounds a month. Drastic action would be needed to keep our house in those circumstances.  

I can find deals now if 3.28% fixed for 5 years. But I’ve got a 2% ERC on current mortgage. If I extend the term by two years and move to the new lender it “only” puts the monthly cost up by £100, which at least remains affordable. 

I’m trying to estimate where rates will likely end up given possibly short term rampant inflation, coupled with a looming recession…I don’t want to end up struggling to pay the mortgage with horrid rates but also don’t want to panic and pay more now needlessly. 

Any advice from people with relevant knowledge would be appreciated. Thanks.

K_S

horatio30 said:

I’m wondering if anyone has an informed view of what a typical 5yr fixed mortgage rate is likely to be come summer/autumn 2023 (based on a 60% LTV). 

My current deal is 2.09%, fixed until October 2023. I’m concerned if rates do hit 5-6%+ then it will add several hundred pounds a month. Drastic action would be needed to keep our house in those circumstances.  

I can find deals now if 3.28% fixed for 5 years. But I’ve got a 2% ERC on current mortgage. If I extend the term by two years and move to the new lender it “only” puts the monthly cost up by £100, which at least remains affordable. 

I’m trying to estimate where rates will likely end up given possibly short term rampant inflation, coupled with a looming recession…I don’t want to end up struggling to pay the mortgage with horrid rates but also don’t want to panic and pay more now needlessly. 

Any advice from people with relevant knowledge would be appreciated. Thanks.

@horatio30 Your guess is as good as mine. This is absolutely not a prediction, but as per current mortgage market expectations, the mortgage rate in a year is expected to be about 1% more than what it is now. 

If that turns out to be accurate, and that's a big if, that translates to 60% LTV rates of around 4.5-5% given that current rates are getting to 3.5-4%.

Again, I can't stress this enough, this could be way off the mark, who knows.

dunstonh

Crystal ball job.

Earlier in the year, the markets were pricing the base rate going to 2%.  Then they increased it to 3%.  Earlier this month they were pricing in 4%.  In the last week, gilts have fallen nearly 5% (down every day), which suggests it's now closer to 5% but has yet could go more.   (a 5% drop in gilts is broadly an expectation of a 1% increase in base rate).

That is multiple times this year that markets have revised their guesses.

Historically, when interest rates were used to control inflation, they had to be higher than the inflation rate to get it under control.   This time is a little different as high-interest rates would not address the major cause of increasing inflation.  So, you really are relying on guesswork.

 I’m concerned if rates do hit 5-6%+ then it will add several hundred pounds a month. Drastic action would be needed to keep our house in those circumstances.  

That is worrying as the long-term average mortgage rate is closer to 7%.   We are inevitably going to end up there at some point.  You best hope that it is after you have repaid your mortgage.   If you cannot afford 7% then you should start taking action now by overpaying and looking at your budget to see how you can reduce discretionary spending.

horatio30

Thanks very much, both replies are very helpful. I’m going to apply for the 5yr fixed at 3.28%, it doesn’t need to be drawn down for six months.

With regards overpayments. Impossible right now due to exorbitant and unavoidable (unless one of us quits work) childcare costs. However in a couple of years time thankfully that money will be freed up - a chunk of it is earmarked for mortgage overpayments. 

Thanks again.