Has there ever been a more confusing time to have a mortgage? It’s doubtful.
On Wednesday the Office for Budget Responsibility (OBR) published data showing mortgage rates are likely to remain high for the next six years.
It now forecasts that the average mortgage rate in 2025 is going to be 5 per cent, rather than just under 4 per cent it predicted eight months ago… and it will stay at 5 per cent, or around there, until 2026.
The percentage point difference is expensive – remortgage at 5 per cent rather than 4 and you will be thousands of pounds poorer each year.
But recently it was reported that a mortgage rate war was under way with rates falling as a result, a picture that at first glance does not resemble the OBR’s outlook. So which is correct? Are rates falling or going up?
The answer is both, depending on the week you are talking about. Rates are changing more rapidly than usual as they are on a hair trigger. They are sent up or down by political expectations – any sniff of good or bad news in inflation data, whether lenders are looking for bigger market share or energy prices.
The OBR data is a sober reminder of the big picture – that rates of between 4 and 5 per cent are likely to be here for the next five or six years.
It is confusing, especially if you are about to remortgage now. The best approach is to focus on what you know now – lock in a deal six months before your deal ends and you can ditch it later if rates do go down.
Second-guessing the market is often a fool’s game, but particularly now. Plan for rates to be between 4 and 5 per cent for the next five or six years.
Anything better and you will be pleasantly surprised.
