Will mortgage rates go down?

What’s the latest in the mortgage market?

Despite some stability in the market, a burning question lingers: when will mortgage rates finally start to lower?

The answer, unfortunately, isn't as simple as a calendar date. Like the housing market itself, predicting the future of mortgage rates is a complex combination of economic factors, market sentiment, and global uncertainty. However, by looking at the current financial landscape and expert forecasts, we can at least paint a picture of what could be on the horizon.

What has already happened in the market?

Following Rishi Sunak’s instatement as prime minister, the proposed tax cuts announced in Liz Truss and Kwasi Kwarteng’s mini-budget have now been reversed and/or axed.

The current Bank of England base rate is sitting at 5.25%, the figure it has been at since it was increased to 5% in June. The reason for this is to combat inflation, which dropped significantly to 3.4% in March. The government's inflation target is 2%, and the Bank of England MPC are forecasting that inflation is going to continue dropping throughout the year.

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Reasons for optimism

Inflation

While runaway inflation was the main culprit driving interest rate hikes last year, its recent slowdown could have a positive effect on mortgage rates. Lower inflation pressures on the Bank of England (BoE) could pave the way for future rate cuts, trickling down to lower mortgage offers.

The housing market slowdown

Higher rates dampened buyer demand, cooling an otherwise hot housing market. If the base rate begins to move down, this shift in dynamics might incentivise lenders to offer more competitive rates to attract borrowers.

Market expectations

Some analysts predict a potential Bank of England (BoE) rate cut as early as the second quarter of 2024, with gradual easing throughout the year. This anticipation itself can nudge mortgage rates downward in the meantime. However, this may change depending on a number of factors, including the level of inflation and the country's economic outlook.

Cautious considerations

Geopolitical turmoil

Global events like the ongoing war in Ukraine and potential economic slowdowns can make financial markets more volatile and influence inflation, impacting interest rates.

Individual circumstances

Your credit score, loan-to-value ratio, and chosen mortgage product will all play a role in the rates you're offered, regardless of broader market trends.

Important information

Your home may be repossessed if you do not keep up repayments on your mortgage.

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What does this mean for you?

Stay informed

Keep an eye on the news and housing forecasts to stay ahead of the curve. Remember, the landscape can shift quickly, and it’s best to be as prepared as possible.

Consult a mortgage adviser

A mortgage adviser can navigate the complex market and find the best deals available based on your specific situation. With times changing as they are, it’s helpful to have someone who knows the industry in and out on your side.

How did mortgage rates get so high?

Mortgage rates in the UK surged in 2022 and 2023 due to a combination of rising inflation, the disastrous mini-budget mentioned earlier, and central bank policies. High inflation, driven by factors like the cost-of-living crisis and escalating prices for essentials, has prompted the Bank of England (BoE) to increase its base interest rate multiple times. These hikes are aimed at curbing inflation by making borrowing more expensive.

Additionally, global economic uncertainties, including the COVID-19 pandemic, supply chain disruptions, and geopolitical tensions, have exacerbated the situation, leading to tighter monetary policies worldwide. The BoE’s actions are also influenced by the policies of other major central banks, like the US Federal Reserve, which has been raising rates, prompting similar moves to prevent currency depreciation.

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Are mortgage rates likely to go down in 2024?

A lot of economists in recent months have suggested that the latter half of 2024 will see some reductions in the BoE base rate. However, mortgage rates are dictated more by swap rates. We may see base rate decreases in the later half of the year, and ideally, mortgage rates will change with this, but we can't be certain.

Swap rates are essentially the cost for banks to borrow money over a certain period, reflecting market expectations of future interest rates. When these swap rates are high, it indicates that borrowing costs for banks are expected to rise, so they set higher mortgage interest rates to cover these costs. Conversely, when swap rates are low, banks can offer lower mortgage rates. So, when the BoE base rate doesn't change, but lenders raise rates, it's usually due to the rise of swap rates.

While economists expect rates to be lowered later in the year, it's not set in stone.

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Could mortgage rates go down in 2025?

Assuming that inflation continues to drop, and swap rates also drop, it is likely that rates could go down in 2025. Again, this is entirely dependent on a myriad of factors, and is impossible to give a certain answer.

As of right now, it may be too early to tell.

What factors affect interest rates?

Mortgage interest rates are influenced by a combination of economic, financial, and market factors. Additionally, inflation itself plays a crucial role—when inflation is high, central banks raise interest rates to cool down the economy, which in turn drives up mortgage rates.

Supply and demand dynamics in the housing market, as well as lender competition and risk assessments, can also lead to variations in mortgage interest rates.

How much can you borrow for a mortgage?

Frequently asked questions

When mortgage rates are low, borrowing is cheaper, making mortgages more affordable. This increased affordability boosts demand for homes, often driving up house prices. When mortgage rates rise, borrowing becomes more expensive, reducing affordability and potentially decreasing demand.

With reduced interest rates, the cost of borrowing decreases, making monthly mortgage payments more affordable. This increased affordability allows first-time buyers to qualify for larger mortgages and potentially purchase more expensive homes than they could with higher rates

The next interest rate decision by the Bank of England is expected on 20th June 2024. The decisions are made every six weeks, and so, the next decision after 20th June is likely to be 1st August 2024.

A fixed rate mortgage essentially means that the rate you lock in when you take the mortgage out will stay the same throughout a 'fixed term' (usually three or five years).

A variable mortgage rate, typically referred to as an SVR (standard variable rate), is a rate that lenders move borrowers onto when their fixed rate expires. This rate usually follows the Bank of England base rate (with a few percentage points added by the lender) meaning that mortgage repayments on these rates may change from month-to-month.

There are a range of mortgage calculators you can use online that can give you an estimation of what you can expect to pay monthly on your mortgage. You will need to input information such as your mortgage amount, interest rate, and the term of your mortgage.

Click here to use our handy repayment calculator to work how much you are likely to repay each month.

Yes, mortgage rates can have an impact on the cost of rent in the private rented sector, As most landlords rent out properties that they have bought through a mortgage, if mortgage rates rise, landlords are likely to raise the cost of rent to ensure that they can maintain their mortgage repayments.

Is it better to rent or get a mortgage? Check out this article to learn more: Mortgage vs rent. What costs you more?

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Will mortgage rates go down in 2024?