Mortgage Market Update – December 2024

As we officially enter the festive period, you may expect a season slowdown but it has been quite the opposite. We look set to have an extraordinarily busy end to the year due to lenders raising the costs on their fixed rate mortgages. I’m going to explore why this is happening in 3 topics that start with T – Tariffs, Trackers and Tax – As who doesn’t love a 3 word slogan;

Market Update

Tariffs

Thanks to our cousins across the pond, Mr Trump has been voted in for a second time. So aside from a ‘Nero-esq’ 4 years in front of us, we also have to adjust for unpredictable and irrational events. The first of which we are experiencing before even taking office… He has taken to Social Media to say, and I Quote “To me the most beautiful word in the dictionary is ‘tariff”. So why is this relevant to us here? It is inflationary, that is why (also inflammatory but that is a separate point). Up until a few months ago we were experiencing inflation coming down for most of the globe and we expected that trend to continue opening the door to faster cuts from central banks than were expected earlier in the year. In recent months that view has changed as inflation rates have slowed, and even increased as they have in the UK. While this still leaves scope for the Bank of England to cut rates, that could well be at a slower pace than was priced in, hence why Fixed Rate mortgages have gone up at a time when the Bank of England has cut the Base Rate.

Trackers

Due to the above point, the difference between Tracker Rates (which specifically Track the Bank of England at a set margin) and 2 Year Fixed Rate mortgages are really quite small. Typically around 0.3% at present. Based on money market expectations (see below), we could well see base rate cuts in that time. As the Bank of England typically move rates at 0.25% chunks at a time, if that is true, that means taking the risk on these products could well pay dividends as the Tracker would end the 2 year period lower than the current 2 year fixed rate offering.

As ever, a word or caution as I am not a fortune teller. If I was, I would have won the Euro Millions and someone else would now be writing this. So it is crucial to understand that is the current expectation and rates can indeed go up as well as down. However, the consensus view is that rates will fall from here, the debate is just by how much and when. That view is unlikely to change unless something significant happens. If something funky does happen that would change this view I will be sure to flag it! The point I am making is that Trackers are certainly worth considering, especially as most do not have penalties, so if the aforementioned mysterious event happens, you can jump out of this product and into a fixed rate, so a win/win. Mortgage pricing is quite slow to react to major events, so we tend to get quite good sight on this. This approach won’t be for everyone, but this is certainly the most attractive Trackers have looked in quite some time.

Tax

A slight aside, but to anyone who has to file as self-assessment tax return, and try and get a mortgage at this time of year, it is a horrible experience! As we well know, you do not need to file your tax return until January, but some lenders will insist on seeing them now (in fact some lenders as far back as October, so that is really fun…). If you are very organised and got that done already, well done you. If you aren’t (like the majority of people) and you need to apply for a mortgage before January I suggest you get on that ASAP as it will save you a lot of headaches in the long run!

Money Market & Mortgage Rates