Our
US
colleagues
have
asked
a
key
question:
when
are
mortgage
rates
going
to
fall?
Stateside,
this
of
course
depends
whether
the
US
Federal
Reserve
is
“done”
in
raising
interest
rates
and
our
analysts
think
so.
Here
in
the
UK
this
conversation
seems
a
little
premature,
at
least
in
terms
of
interest
rates.
A
journalist’s
question
at
this
month’s
Bank
of
England
(BoE)
elicited
a
“nice
try”
from
governor
Andrew
Bailey.
But
there
is
at
least
a
sense
of
adjusted
expectations
after
the
“mortgage
mayhem”
of
the
early
summer
when
banks
were
pulling
deals
and
rates
were
soaring.
A
drop
in
inflation
for
June
has
helped
the
case
that
the
worst
is
over.
What’s
Changed?
Nationwide,
NatWest,
HSBC,
TSB,
Santander,
Halifax
have
all
cut
some
mortgage
rates
this
month.
These
changes
weren’t
big
in
the
context
of
2023’s
increases,
which
took
rates
to
15-year
highs,
but
they
have
encouraged
speculation
we
may
have
seen
rates
peak.
Banks
and
building
societies
are
also
reaching
out
to
customers
after
the
government’s
“Mortgage
Charter” – which
aims
to
relieve
some
of
the
pressures
on
households –
and
stave
off
repossessions.
People
now
have
the
choice
between
extending
their
mortgage
term
up
to
40
years
(the
norm
is
25)
or
switching
to
interest
only
payments
for
six
months.
Anything
Else
Going
On?
By
pure
coincidence
my
mortgage
lender
emailed
me
on
the
same
day
that
Italy
caused
a
major
stir
by
levying
a
windfall
tax
on
banks (the
country
later
backtracked).
A
similar
announcement
seems
unlikely
in
the
UK
for
various
reasons,
but
the
warning
may
be
enough
to
change
behaviour.
Certainly
the
banks
are
“on
notice”
after
being
dragged
into
Downing
Street
to
explain
why
savers
have
not
benefited
from
interest
rate
risis
–
which
is
the
core
of
the
Meloni/Salvini
argument
that
the
Italian
tax
has
a
moral
argument.
One
of
Britain’s
biggest
mortgage
lenders,
NatWest,
has
just
lost
its
chief
executive
over
the
Farage
row,
a
story
that
appears
to
have
receded
from
the
news
agenda
for
a
while.
But
relations
between
the
government,
which
is
NatWest’s
biggest
shareholder,
and
the
banking
sector
are
currently
fragile,
to
say
the
least.
When
Will
BoE
Say
‘We’re
Done’?
The
argument
seems
to
be
obvious:
if
inflation
is
now
falling
–
and
hopefully
that
trend
can
be
sustained
–
why
can’t
the
Bank
stop
hiking
or
even
start
cutting
rates?
Policymakers
argue
the
job
is
not
completely
done,
as
they
explained
at
the
start
of
the
month.
Inflation
is
forecast
to
fall
to
5%
by
the
end
of
this
year
and
go
back
to
the
2%
target
by
2025.
But
the
journey
back
to
“normal”
inflation
is
expected
to
be
a
bumpy
one,
with
potential
increases
to
the
consumer
price
index
(CPI)
likely
in
the
autumn.
Interest
rates
are
now
expected
to
peak
at
5.75%.
After
the
latest
rise
to
5.25%,
the
14th
in
a
row,
Nationwide
said
it
would
increase
its
“base
mortgage
rate”
to
6.75%.
Its
“standard
mortgage
rate”
will
stay
at
7.99%.
But
these
are
default
rates
people
are
moved
on
to
after
their
fixed-rate
deals
come
to
an
end.
In
other
words,
homeowners
don’t
stay
on
them
for
long
and
switch
to
more
competitive
products.
Still,
average
two-year
fixes
are
around
7%
in
the
wider
market.
Is
the
Worst
Over?
Sticking
with
the
theme
of
fixed-rate
mortgages,
these
products
have
become
more
popular
in
the
last
decade:
according
to
government
body
UK
Finance,
the
proportion
of
new
homeowners
mortgages
taken
out
on
fixed
rates
has
gone
from
below
50%
in
2010
to
above
90%
in
2021.
For
a
long
stretch
of
that
era,
the
perception
interest
rates
would
stay
low
for
a
long
time
was
pervasive.
Time
has
proven
the
argument
wrong.
A
tracker
may
have
been
the
better
option
in
that
case,
but
for
those
lucky
or
farsighted
enough
in
2021
to
lock
in
low
rates,
a
fixed
rate
would
have
been
a
smarter
choice.
Their
relief
as
interest
rates
rose
from
0.1%
in
5.25%
in
less
than
two
years
may
be
shortlived,
however.
In
the
latest
monetary
policy
report
by
the
Bank
of
England,
this
line
stood
out:
“only
around
half
of
mortgagor
households
are
estimated
to
have
faced
an
increase
in
mortgage
repayments
since
rates
started
to
rise
in
late
2021.
There
are
around
four
million
more
households
who
have
not
yet
faced
increased
mortgage
costs
but
will
do
so
by
the
end
of
2026.”
Now
the
Bank
is
both
worried
about
this
but
also
keen
to
see
some
impact
from
higher
rates
on
spending.
The
technical
term
for
this
is
“transmission”,
which
measures
the
impact
of
rate
rises
on
the
economy.
If
homeowners
are
paying
more
on
their
mortgages,
they
will
spend
less
in
the
economy,
which
in
theory
should
reduce
inflation.
That’s
the
whole
point
of
this
exercise
and
illustrates
the
difficult
position
the
Bank
is
in;
its
remit
is
to
bring
inflation
down
and
pain
for
mortgage
holders
(and
the
high
street)
may
be
the
collateral
damage
required
to
do
this.
If
Interest
Rates
Fall
Will
Mortgage
Rates
Fall
Too?
Logically,
there’s
a
connection
between
interest
rates
and
variable
rate
mortgages.
Trackers
in
particular
have
direct
link,
so
a
0.25%
increase
in
the
Bank
Rate
will
lead
to
an
identical
move
in
your
mortgage
rates.
Naturally
these
products
were
attractive
in
the
era
when
rates
were
1%
or
below.
Not
so
much
now.
For
fixed-rate
products
there
are
a
number
of
variables:
the
two-year
overnight
index
swap
(OIS)
rate
is
a
key
rate
for
shorter
term
fixes,
while
government
bond
yields
are
used
to
price
longer
term
products.
Currently
the
“yield
curve”
is
inverted
in
that
shorter-term
gilt
yields
are
higher
than
longer
term
ones.
A
two-year
gilt
yields
5.12%,
just
below
current
interest
rates,
the
5-year
yields
4.62%
and
the
10-year
is
a
touch
lower
at
4.61%.
At
the
moment
the
best
five
and
10-year
fixed
rate
mortgages
are
around
5%,
so
you
can
see
the
rates
are
comparable.
Gilt
yields
factor
in
inflation,
interest
rate
and
recession
assumptions.
Turbulence
in
the
government
bond
market
in
autumn
2022
and
earlier
this
summer
caused
a
rise
in
yields
and
triggered
banks
to
pull
mortgage
deals.
What
Next?
Keep
a
close
eye
on
the
inflation
data
in
the
next
few
months.
The
BoE’s
next
meeting
is
on
September
21
and
the
market
is
expecting
another
rate
hike.
The
next
one
after
that
is
November
2.
Mortgage
lenders
and
investors
will
be
closely
monitoring
the
messaging
coming
out
of
these
meetings.
The
“final
hike”
will
not
be
advertised
as
such
but
will
be
a
significant
moment
for
those
mortgage
holders
coming
off
fixed
rates
this
year
and
next.
Analysts
expect
the
Federal
Reserve
to
hold
rates
now
until
the
end
of
this
year
and
start
cutting
in
2024.
How
quickly
the
UK
catches
up
remains
to
be
seen.
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