Mortgage rate cuts despite economic fears

Several mortgage providers have announced cuts to mortgage interest rates, including HSBC, NatWest, TSB and Metro Bank. This aligns with the BBC recently reporting data that the average two-year fixed mortgage rate has dropped from 5.93% at the start of the year to 5.62% today¹.

These interest rate decreases come at a time when there are fresh economic fears about the road ahead, so would it be a good time to lock in one of these reduced mortgage interest rates?

What’s causing economic fear?

New economic fear is being caused by upheaval in the Red Sea and how these developments could impact the UK’s economy. Rebels in Yemen known as the Houthi Rebels have started attacking commercial shipping vessels using the passage in the Red Sea. Some attacks are carried out with missiles and drones, but they have also hijacked some vessels. They are executing these attacks in response to Israel’s bombardment of Gaza².

The Red Sea is a significant location in global trade. It is a densely packed and high-traffic vessel route between Europe, East Africa and Asia. It’s estimated that around 12% of all global trade must pass this narrow channel, which also makes it a priority target for Houthi Rebels². The delays caused by these attacks, or even just the threat of these attacks, slow down trade and can push up costs, which is occurring at a time when central banks around the world are hoping to finally get inflation under control.

How worried should mortgage payers be?

Dr El-Erian of Cambridge University and chief economic adviser to Allianz has gone on record stating that the events will cause inflation and mortgage interest rates to be higher than what they otherwise would be without the development in the Red Sea. In other words, these events will have an impact on British shores¹.

However, it’s not expected that these events will affect the cost of living and inflation rates as significantly as those in recent years, namely the fallout of the global pandemic and Russia’s illegal invasion of Ukraine. Nevertheless, it isn’t the best news for those wanting mortgage rates to decrease as fast as possible. Consider it a prospective bump in the road as rates return to more normal levels over 2024.

Should you lock in a lower rate now?

Economic fears may have you considering one of the slightly lower fixed rates now on offer. To discuss your situation and the road ahead, it’s best to speak with a qualified mortgage adviser, such as our friendly team here at Euxton. Get in touch with one of our mortgage brokers today to discuss your next money-saving move in the mortgage market. We’re here to help!

Sources

1.    https://www.bbc.com/news/business-67992415
2.    https://www.theguardian.com/business/2023/dec/19/red-sea-shipping-crisis-bp-oil-explained-what-is-happening-and-what-does-it-mean-for-global-trade

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

February 2024