Mortgage rate war – where does it go next?

In the past few weeks, many lenders have slashed mortgage rates, with NatWest and Halifax among the big names to do so recently – the former by up to 0.72% and the latter by up to 30 basis points.  

So has the outlook for mortgage rates finally turned? And what happens next?

What is the outlook for the mortgage market as rates are cut?

Kundan Bhaduri (pictured left), property developer and portfolio landlord at The Kushman Group, said this is an unprecedented time for property investment.

“Those holding cash reserves and seeking investment prospects should seize the current market conditions because, in our assessment, this era of uncertainty and reduced house prices is unlikely to extend beyond 2024,” he said.

While short-term interest payments may be higher, Bhaduri said, the opportunity to acquire assets at 10% to 15%, sometimes even 20%, below prices from just a year ago is significant.

House prices, Bhaduri added, directly correlate with lending accessibility and market liquidity. As the clouds of high-interest rates disperse and give way to more favourable rates in 2024, he believes demand for residential properties is poised to surge.

As it stands, on a seasonally adjusted basis, the number of UK residential transactions in October 2023 was 82,910, which is 3% lower than the previous month and 21% lower annually, the latest HMRC Property Transaction data showed.

“It is crucial to note that we inhabit a society grappling with a severe housing shortage, where demand consistently outpaces supply, compounded by a lag in new house construction,” Bhaduri  said.

This, he believes, presents a truly unique opportunity, a once-in-a-generation chance, for those looking to invest in property.

“The window of opportunity is now, and those who act decisively may reap the benefits of acquiring assets in a market that is likely to rebound after 2024,” Bhaduri added.

Should lenders continue cutting rates?

James Vince (pictured right), managing director at Castle View Finance, appreciates market stability, but said it is imperative to continue waging a war on rates and product fees for sustained competitiveness.

“With 70% of our clientele driven by investors, securing the lowest rate is vital to managing cash flow within their business models, directly impacting the rental market,” he said.

Vince added that it is a straightforward equation - no cash flow, no landlords - especially in cases where landlords have hesitated to increase rents.

Negative press in the investor space, he said, underscores the challenges faced by landlords who, having been complacent, and are now feeling the financial strain.

“Securing a market rent increase becomes a daunting task, particularly when the market is witnessing widespread hikes,” he added.

In this landscape, Vince said it is crucial to recognise that banks, much like advisers, are in the business realm.

“A return of 5% may seem acceptable, but it is low for many commercial-minded businesses; therefore, let the war on rates and product innovation continue, but there is a pressing need to address the exorbitant fees prevalent in the industry,” he said.

Striking a balance between competitiveness and fair fees, Vince said, is key to fostering a healthy and sustainable financial environment in the long term.

What do you believe the outlook of the mortgage market is amid declining interest rates? Let us know in the comment section below.