In the wake of lower inflation, swap rates – the main pricing mechanism for fixed-rate mortgages – fell. Swap rates give an indication of where the market believes the bank rate will be in the future. Both the five-year and cash rates fell by about 0.2% in the past 24 hours.
Chris Sykes, technical director at mortgage broker Private Finance, said: “Lower interest rates will help instill confidence in lenders for the new year to offer mortgage interest rate cuts.
“Lower average mortgage interest rates, especially long-term interest rates, will help restore confidence in the housing market.” Sykes added that interest rates on long-term loans, with reforms lasting about five years, are expected to fall to between 3% and 4% in the near future.
A lack of market confidence and continued financial pressures on potential buyers have led to a general slowdown in the housing market, with a significant decline in transaction volumes.
The number of residential housing transactions in October decreased by 17% compared to the same month last year.
Brokers say that because of this recession, lenders are keen to take advantage of the expected jump in activity in January and cut interest rates further to attract business.
“We’re all talking about a classic January sales case,” says Justin Moy, managing director of EHF Mortgages. “I think we expect lenders to repricing quickly. We think a sub-4pc deal of maybe 5 years will be with us towards the end of the year.
“We think lenders will have some serious goals to achieve, so they will put their foot firmly on the pedal to increase lending.”