According to MoneyFacts research, 5-year fixed rate mortgages have fallen back down below 6% pa on average from their highs of nearly 7% pa in late October 2022, after the failed Mini Budget.. 2-year fixed rates are still above 6% pa.
This gives us a clear indication that lenders are borrowing money from the market and Bank of England with an anticipation that in the short-term, interest rates are likely to remain higher in the short term but with an expectation that inflation and therefore interest rates may increase slightly over the next year but will like fall when we look to the medium term.
These rates are still well above their 2.25% pa average for a 2-year deal and 2.5% pa average for a 5-year a year ago. Historically, rates are now at around their average over the last 50 years, and we expect current levels to fall slightly and then be maintained for, we hope a more stable period.
Inflation is not going away. Higher energy costs are here to stay until ‘greener’ energy becomes the ‘norm’ in 10 years or so. We expect inflation to run above the Bank of England’s target for a number of years meaning interest rates will also likely be higher than we have become accustomed to over the last 14 years. Never forget, governments and central banks need inflation to devalue the 75% majority of fixed rate government dent before it is due to be repaid in the 20-30 years.