Following the inflation drop, swap rates – the main pricing mechanism for fixed rate mortgages – have fallen. Swap rates give an indication of where the market thinks the bank rate will be in the future. Both the five-year rate and the two-rate rate have fallen by around 0.2pc over the past 24 hours.
Technical director at mortgage broker Private Finance, Chris Sykes said: “The fall in swaps, will help instil confidence in lenders for the new year to offer mortgage rate reductions.
“A fall in average mortgage rates, particularly long-term rates, will help restore confidence in the housing market.” Sykes added that rates on long-dated loans, with fixes lasting for around five years, are expected to drop to between 3pc and 4pc in the near future.
Lack of market confidence and ongoing financial pressure for prospective buyers has resulted in a sluggish year for the housing market, with transaction volumes significantly down.
The number of residential housing transactions in October fell 17pc compared to the same month last year.
Because of this slump, brokers say, lenders are keen to capitalise on the expected jump in activity in January and lower rates further to draw in business.
“We are all talking about a classic January sale situation,” says Justin Moy, managing director of EHF Mortgages. “I think we are expecting lenders to reprice quickly. We think the sub-4pc probably a 5 year deal will be with us near the end of the year.
“We think lenders will have some serious targets to achieve so they will be putting the foot firmly on the pedal for increasing lending.”
