Mortgage Rate Predictions in Jan 2022

5 Must Know Expert Predictions for Mortgage Rates in 2021 & How You Can Benefit

Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui

Thinking of Buying a House and Hoping the Interest Rates Are Favourable? You're Not Alone, Many People Are on the Edge of Their Seats Wondering What'll Happen to the Economy. We're Here to Show You 2021's Mortgage Rate Forecasts.

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The 2021 Mortgage Rate Predictions: What Does It Mean for YOU?

Predicting interest rates has become an even more intriguing topic of speculation after the worldwide pandemic. The economy now is as unpredictable as ever, and the property market is speculated to continue to grow.

So, what are the mortgage rates predicted to be for the rest of 2021?

Our Fearless Forecast

Experts are predicting some interesting numbers for the 2021 real estate market.

  • Property Prices Will Increase

Property listing across the UK grew by 13.3% in 2020. The median existing home price for all types of homes was ¬£310,800 in November. That’s 14.6% more than the previous year, and no region was left out.

According to experts in the property market, these processes will continue to rise.

  • Property Sales Growth Will Be the Biggest Since the 1980s

Even as property prices increase, property sales won’t be so heavily affected by it. According to expert economists, property sales will grow more than ever since the 1980s.

Thanks to the many millennials now buying property and Generation Z, the property market will grow immensely in 2021.

  • Mortgage Rates Will Slightly Increase

Equity release interest rates were at an all-time low at the end of 2020/beginning of 2021, with the possibility of rates coming in at 2.7%. However, homeowners can expect a slight increase.

According to experts, the low-interest rate we saw last year is the lowest it’ll ever get.

Let me tell you something:

If you still want a mortgage, do it as soon as possible this year to get the lowest interest rate you’ll ever get. You can expect an increase of less than 1% throughout the year. The prediction for rates is 3.2% at the end of 2021.

  • There Will Be Less Refinancing

The refinance boom that occurred last year was due to low-interest rates on equity release. The standard 30-year fixed mortgage rate had a record low 16 times during 2020.

Some equity release providers documented a whopping 180% increase in product sales. To quell this enormous volume, certain providers had to increase their rates. To give you another example, The Mortgage Bankers Association’s refinance stats saw a massive 100% increase in 2020 as well.

Now:

Purchases are predicted to increase by 8.5% or £1.54 trillion in 2021. Further predictions are that the number will decrease in 2022 to about £946 billion.

There’s more!

No one would’ve thought that lower than 3% rates would or could be a bad thing, right? But, like everything, this is also relative. As we’ve mentioned, in early 2021, rates were set at around 2.5% and rose to 2.8% as the year went on.

Rates couldn’t keep dropping lower and lower. It had to stop somewhere.

Let’s have a look at a forecast graph:

Mortgage rates forecast for the next 90 days through Spring 2021. Mortgage rates are projected to rise gradually.

Now, let’s consider what impact the pandemic will continue having on mortgage rates.

  • COVID-19 Will Inflate Rates

Of course, coronavirus1 has had an impact on mortgage rates. Experts are saying that the vaccine will have good and bad outcomes when it comes to rates.

On the positive side, immunity will happen when 70-90% of the population gets vaccinated, and case counts will start dropping.

On the negative side, as people start travelling again and a year’s worth of pent-up demand explodes, inflation2 will reach extreme levels.

Mortgage rates are directly connected to inflation: they’re inflation-sensitive. This means that they’ll lose value in high inflation. But how does this work, you may ask?

When investors shy away from mortgage-backed securities and get drawn back in due to higher and higher rates, the higher rate is passed onto mortgagers. Some experts think that rates can surpass 3% or even higher percentages. It’s likely that right now is the best it’s going to get for a long time.

Just think about it.

Rewind to the year 2013. It was the worst when it comes to equity release mortgage rates. 30-year rates went from a reasonable 3.35% at the time to 4.46% in just eight weeks! This equated to roughly ¬£200/month for a ¬£300 000 mortgage.

As markets are always forward-facing, rates could skyrocket if providers decide to tip their hands about tapering stimulus. In 2020-2021 we saw the same pattern as in 2012-2013, where rates were meagre and then drastically increased.

Will rates keep rising?

If providers don’t decide to reduce mortgage bond purchases, we might maintain the current rates. But who’s to say?

Strategy

What Should Your Strategy Be?

Now’s the perfect time to cancel mortgage insurance‚ÄĒthe value of the property increased drastically in 2020. As 2021 goes on, homeowners can have the perks of property prices rising combined with the current low rates.

Refinancing out of mortgage insurance is super effective now more than ever.

What does this mean for you?

Generally, property buyers don’t put down 20%, but more towards the 6% mark. Therefore, first-time property buyers will pay some sort of insurance on their mortgage3.

You can also choose to use the equity that’s locked up in your property while the mortgage rates are so low. It doesn’t have to be risky. If you do it properly, releasing equity from your home can be very rewarding.

Better yet!

You don’t have to use that cash for debt repayments. Using equity release cash, you can also fix up your house and make your home d√©cor dreams come true! Especially now if you’re one of those people who need to work from home.

Thanks to COVID-19, you now have to make do with your unequipped space at home and turn it into an office. However, you can continuously tap into your home’s value to get some extra cash and remaster your office space. 

Take a look at an example:

It’s normal to keep roughly 20% of your home’s equity after the refinance. (Even better rates are available to you if you save 25% of the equity.) so, a normal cash-out is worth it if you have around 35-40% of your home’s equity with a property value of ¬£250 000 plus.

Unfortunately, we have to mention the pandemic again because, throughout history, pandemics have affected economies worldwide. And, as you know, COVID-19 has affected us all. We’ve spoken briefly about it, but let’s dive in deeper.

Predictions From Other Sources

Rates could stay above 3% in 2021, some economists4 predict. However, it won’t be above 3.1% – 3.3%, they say. So far, their predictions have been correct up until March 2021. 

Let’s have a visual:

Mortgage Rate Predictions

You have to remember that these rates are still meagre compared to the beginning of 2020. In simpler terms, rates are expected to remain low or around the 3% range.

Does the Bank of England Affect Rates?

They don’t set these rates directly. However, they set the overall rate environment. But let’s face it, even though the increase in rates isn’t so much percentage-wise, the extra amount you’ll have to pay monthly will add up to hundreds of pounds!

Further predictions are that the rates will rise as far as 3.6% in the year 2022. Higher rates have been known to decrease buying power, especially now that property price appreciation is on the way to increase this year.

Let’s look at the numbers:

Loan amount Mortgage rateMonthly paymentTotal interest paid
¬£500 0002.675%¬£2 020.08¬£227 229.08
¬£500 0003.1%¬£2 135.08¬£268 629.52
¬£500 0003.3%¬£2 189.78¬£288 319.39

Is Mortgaging a Good Way to Get Extra Cash?

Compared to other competitors, equity release is becoming a great one! Traditional borrowing isn’t as high on the charts anymore because equity release is becoming one of the UK’s leading financial solutions.

The ERC5 states that January 2020 saw more than 400 new equity release plans signed. So, there are many options to choose from when you’re 55 years or older, and you need some extra cash by releasing equity from your property or home.

Let me mention something else…

When it comes to interest compounding, you’ll need to look into a few other features before you decide on an equity release. Features such as:

  1. Downsizing protection

You can pay off your mortgage without having to pay early repayment fees, which means you may repay it at any time. For example, when you want to sell your present home to relocate in the future.

  1. Interest repayment

Look into your loan’s details to determine how interest is calculated and whether you can make one-time interest payments at the end of the term. Some lenders allow you to make once-off interest payments at the conclusion of your term; others enable early repayments or part-interest repayments.

  1. Loan repayments

Around 50% of the ERC’s products allow you to make part-repayments to settle your loan, all without incurring early repayment penalties. This is wonderful since it reduces the overall end cost.

  1. Drawdown reserve

Drawdown lifetime mortgages come with the option of an initial lump sum. You will also be allowed to make an account reserve of more money to draw down in the future.

Better yet…

There’s no interest charged on the reserve, and only on the cash actually released. This is great for managing compounding or accruing interest.

So, what’s next?

To get an idea of the in’s and out’s of a lifetime mortgage, talk to your financial advisor about it to acquire a full picture. Make sure they’re certified equity release specialists adviser who is up to date on current interest rates, house prices, and borrowing opportunities.

Especially now, with the 2021 predictions, it’s clear that this is the way to go and that the time is now.

2 Things You Should Never Forget

Don’t Unlock More Money Than You Need

The rates you’ll pay on the mortgage will increase the closer you get to your maximum borrowing limit.

Currently, the highest rate for the maximum is 6%. But, if you take out 75% of your maximum, your rates will most likely be 3% or less. And then, if you take out 60%, you’ll qualify for 2.24%!

But what about regular mortgage rates?

Well, even though standard mortgage rates are between 1-2%, equity release rates are fixed for life, making it a better option in the long run.

Releasing Cash Only When You Know You Need It

As you probably know, drawdown plans and income plans let you draw down against a pre-agreed facility. Drawdowns allow you to choose income plans to ask that you set your income amount from the get-go.

Even though they’re more rigid, there’s additional certainty attached to income plans because you set the rate at the beginning of the agreement. On the other hand, drawdown rates are only charged on withdrawn funds. Plus, each drawdown comes with another application.

Got Questions? Check These First

Will Mortgage Rates Go Down In 2021?

Will Interest Rates Be Low In 2021?

Will Rates Go Back Up?

Will Rates Keep Dropping?

In Conclusion

Let’s say these predictions come true: property prices rising, slightly higher interest rates etc., this means that those who still want or need to take out a mortgage should do so as soon as possible to secure the lowest possible rates and save the most money.

The longer you wait, the more money you’ll end up losing.

Equity release mortgaging is a safe and wise option for you at this time in our era. However, you must be aware of the equity release pitfalls before making your final decision.

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.
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Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.
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Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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