"When we see a two-year fix sub-4% will come down to two factors: the two-year SWAP falling a little more and increased competition forcing lenders to chase rates."
With inflation coming down faster than expected last month, Bank Rate likely to be close to its peak and the possibility of rate cuts later this year to stimulate the economy, PR platform Newspage asked brokers when they think two-year fixed rates will drop below 4%.
Gaurav Shukla, CEO at home me: "We won’t see two-year fixed deals below 4% for some time. It will only happen when the base rate starts to come down. Until then, it will be hard for lenders to lend at 4% on short-term deals. The third quarter of this year is when the base rate will likely start to come down, as long as inflation continues to fall at the speed it is. We may only see one more base rate increase, which would be good news for all and the beginning of the end of this mess we're in. Having short-term deals below 4% would welcome a lot more first-time buyers as they are typically known to move sooner than anyone else, so having a better rate with flexibility after two years is great for them. This will have a positive impact on the market and at that point we’ll start to see house prices stay static for longer, or even start going up slowly again."
Amit Patel, adviser at Trinity Finance: "Two-year fixes should stumble below the 4% barrier within the next few weeks. At the time of writing on Thursday morning, the two-year Sonia swap rate is 4.157%. The last thing we need now is a fiasco when Jeremy Hunt makes his Budget statement on March 15th. We cannot afford another Truss/Kwartang debacle."
Jonathan Burridge, founding adviser at We Are Money: "This morning, the two-year SWAP rate is around 4.6% and the longer term five-year is 3.77%, so that indicates markets expect rates will be coming down. The lowest headline rate two-year fixed sourced on Thursday morning was at 4.25% with a £999 fee and £500 cashback. A lender could plausibly launch a 3.99% two-year fixed with a higher lender fee right now if their treasury can make the numbers work. So when we see a two-year fix sub-4% will come down to two factors: the two-year SWAP falling a little more and increased competition forcing lenders to chase rates. The economic news in the UK hasn't been as negative as many had expected, so sentiment may lead a lender to go sub-4% on a two-year fix. If nothing unexpected happens in the coming months we could well see that sub-4% two-year fixed for lower geared borrowers, namely sub 75% of the property value."
Justin Moy, managing director at EHF Mortgages: "It would be great to see two-year fixed deals drop below 4% by Easter. It will take a bit more time as shorter term rates reflect current economic conditions, and whilst inflation is falling, it needs to drop to single figures to help push rates that much lower. In the meantime, trackers will continue to be popular, and any with no early repayment charges will see higher volumes whilst borrowers wait for cheaper fixed deals."
Gary Boakes, director at Verve Financial: "We are very close now at 60% LTV, so it is not unreasonable to think that we will see a sub-4% rate in the last quarter of 2023. Forecasts of a base rate peak of 4.5% and for Bank Rate to potentially drop towards the end of the year coupled with firce competition between lenders suggests we are heading for a sub-4% world of two-year fixes late 2023 and definitely into early 2024."
Chris Sykes, technical director and senior mortgage adviser at Private Finance: "It is unlikely that we will see sub-4% two-year fixed rates for a while. It is unlikely we see them until base starts to comes down, or is closer to that point. The reason we can get sub-4% five and 10-year fixed rates is due to SWAP rates on 3+ year money being under 4%, so in simple terms, if a bank cannot borrow themselves for sub-4% they definitely cannot lend at sub-4% on shorter term fixed rates."
Graham Cox, director at SelfEmployedMortgageHub: "It wouldn't surprise me if we see the first sub-4% two-year fix by the spring, particularly if there's no further base rate rise next month. That will provide lenders with the confidence they need to cut rates further."
Samuel Ewen, managing director at Rosehill Financial Services: "It’ll be great to see two-year fixed products fall below 4%, and I expect them to be popular once they do. Currently it’s unclear when two-year fixed rates will breach the sub-4% bracket, as the two-year Swap Rates on Thursday morning are still above 4%. That said, we are seeing rates reducing regularly at the moment. Lenders are becoming more and more competitive, and if Swap Rates fall further, we may see rates below 4% soon. As with the five-year fixed products, we’ll likely see these sub-4% rates at the lower LTV brackets for a little while, before filtering down to those with less equity/lower deposits."
Luke Thompson, director at PAB Wealth Management: "I believe that we are still a little way from lenders committing to sub-4% interest rates on two-year fixed deals. We still don't know yet if the Bank of England has finished with base rate rises and with this in mind I think most lenders will hedge their bets with regards to sub-4% two-year fixes until the early part of 2024. There are signs that the five-year fixed rate price war has started to plateau with most lenders pitching their cheapest deals just above 4% and in my opinion the majority of lenders will potentially now look to get their two-year fixed rates closer to the five-year fixes than they have been for the past twelve months."
Lewis Shaw, owner and mortgage broker at Riverside Mortgages: "It's easier to find Atlantis than make a prediction when rates may come down. That said, towards the end of the year is looking like a pretty safe bet if you're a betting person, which I am. I know it seems counterintuitive, but the fetish around interest rates isn't helpful because it leads to buyers constantly trying to second-guess a market that even macroeconomists and interest rate traders get wrong. The focus should only ever be: is my mortgage affordable? Whether that rate is 1% or 8% is immaterial as you don't pay a rate, you pay in pounds and pence."
