Base rate now higher than Snoop Dogg in a hotbox. Why first time buyers should take a chill pill
The base rate is now higher than Snoop Dogg in a hotbox. Here’s why first time buyers should take a chill pill.
4th February 2023. The information within was correct at the time of publication but is subject to change.
On Thursday the Bank of England increased the base rate to 4.0%. This is the highest it has been since October 2008. So What by Pink was number one in the charts and Boyzone were still releasing albums (all be it a greatest hits album).
For context between February 2004 and October 2008 and the base rate was between 4.0% and 5.75% showing how unusually low the base rate has been since then and 2022 when it started to increase.
You will have seen the media reporting that this week’s base rate increase spells danger for people paying mortgages (I assume. I haven’t watched the news since early 2020). But what if I told you that interest rates for first time buyers actually fell this week? And last week, and the week before, and will probably fall next week as well.
And this is why you need to take a metaphorical chill pill.
“But why are interest rates for first time buyers falling” I hear you ask?
Well, mortgage lenders don’t set their fixed rates based solely on the Bank of England base rate today or how it changed most recently. It’s a factor but it’s not the sole factor. Back in Spring of 2020 the base rate was cut from 0.75% to a record low of 0.10%. What happened to fixed rates? They shot up. A lot. This was because mortgage lenders were struggling to cope with the processing of applications. So what did they do to reduce the number of new applications? They put their prices up. And their price is their interest rate. They were also hella worried about what was about to come but it turns out they needn’t have been as mortgage lending and house prices shot through the roof and banks went on to offer some of the lowest rates in history. I fixed one client for 0.99% for 5 years!
So even though the base rate went up this week many lenders, including big boys like HSBC & TSB, reduced their fixed rates. There’s a consensus in the industry that when lenders massively increased their fixed rates in late 2022, they were pricing in huge increases to the base rate to potentially 6%. We have Liz Truss, and more specifically the 81,326 Conservative Party members who elected her to thank for that (in my opinion (and probably the opinion of the other 67,248,673 people in the UK)).
This caused the banks to put their prices (interest rates) up a lot as the money they had access to (by something boring called swap rates) shot up in price. This is because swap rates are forward-looking and people thought that the base rate would increase more in the near future. In the end, the base rate hasn’t, or isn’t now expected to, go up as much as people thought back then. So that’s why lenders are actually reducing fixed rates this week. They went up more than they needed to back then and have the capacity to assess applications right now.
So should you delay getting a mortgage if rates are falling? No probably not. A better idea is probably just to go with one of the lenders that will let you switch your product to a new lower rate if they release lower rates before your mortgage completes and you get the keys. Your mortgage broker will be able to sort that out for you. I’ve been doing it a lot the last few weeks and collectively saved my clients tens of thousands of pounds.
So is now still a good time be getting your first place? Here’s my more detailed answer but to quote Snoop “fo shizzle.” Dad if you’re reading this that’s a phrase Snoop Dogg coined to mean “for sure.” Yes, the guy from the Just Eat adverts.
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