When Will Mortgage Rates Go Down UK

The Bank of England kept the base interest rate at 5.25% in August 2023 after raising it 14 times, and the rate was held at 5.25% in the September, November and December 2023 meetings. Even now, mortgages and savings are historically high, and inflation is falling.

Mortgage rates UK jumped after the disastrous Liz Truss mini-budget in 2022 and again in the summer of 2023, and money markets are predicting the Bank will reduce the interest rates UK by a whole percentage point to 4.25% by the end of 2024. With the predictions of base rate UK cuts in 2024 and house price rises, lenders are reducing rates to attract new business. 

What Are the Current Mortgage Rates?

Experts believe the interest rates UK have peaked and will start to fall. The market was assuming the interest rate hiking cycle was done. There is a mixed outlook from the Bank's interest rate committee, which will act as a brake on the fall of short-term interest rates and put upward pressure on mortgage market pricing. 

The latest Monetary Policy report states the rates are expected to remain around 5.25% until 2024Q3, and then it will decline to 4.25% by the end of 2026. 

The average two-year fixed mortgage rate dropped below 6 per cent for the first time since June; at the end of 2021, it was as low as 2 per cent. 

The growth in mortgage rates UK in the second half of 2024 means the homeowner will have to pay high monthly costs, and the fixed rate mortgage deal of the 1.4 million households will come to an end, and nearly all of them will see a rise in monthly repayments. 

This makes it difficult for prospective first-time buyers to get on the housing ladder due to higher mortgage costs, making affordability checks tough to clear. 

What Is The Interest Rate UK?

The Bank of England has to keep the annual CPI inflation rate (the measure of the rising cost of living) at around 2 per cent. The Bank's Monetary Policy Committee has been battling to control inflation for over two years, hiking the base rate UK 14 consecutive times, reaching the 15-year high in September 2023 to 5.25%, increasing the borrowing cost, lowering spending and cooling the upward moment on prices, bringing down inflation.

The Bank of England forecasts inflation to fall to the target of 2% by the end of 2025. 

When the interest rates are high, the debt is expensive, and banks offer better rates on savings accounts. If there is less demand for goods and services, the prices will fall, reducing inflation. 

The Bank is concerned about the wage-price spiral; the unemployment is low, and the analysts think the interest rates have peaked and are starting to fall. Research firms expect the Bank to lower the base interest rate to 3% by the end of 2025. 

The projections from the Berenberg Bank foresee the rates to decline to 4% by the end of 2024. The Monetary Policy report states the rates are expected to be at 5.25 per cent until 2024 Q3 and then decline to 4.25 per cent by the end of 2026. 

Declining demand for property has already led to a decline in price by 5.3% from September to 2023 ( as per the Nationwide Building Society data). However, the prices grew by 0.9 per cent in October 2023, and it is significantly lower than usual for this time of the year. 

Are Mortgage Rates Going Down?

The nation's largest mortgage lender, Lloyds Bank, expects property prices to keep falling until 2025. There are some fears that the high mortgage rates UK may cause a property crash. The base rate has stabilised, and the wages are rising faster than expected, which has caused analysts to change expectations. 

House prices are expected to decline, and many homeowners may have negative equity. The government is discussing it with mortgage lenders and has instructed them to support mortgage customers by keeping a low rate. A cheap home loan is good news for first-time buyers in 2024 and those who want to remortgage, as rates and property prices are currently high for many.

Mortgage Rates UK 2023

HSBC became the first lender to reduce the mortgage rates 2024 to below 4 per cent. It is offering a five-year fix at 3.94 per cent. HSBC also reduced the 2-year fixed rate mortgage to 4.49 per cent, far below the market average for the product of 5.76%.

Halifax and Leeds Building Society have cut the fixed rate mortgage by up to 0.92 percentage points, and other lenders may follow suit. 

The Co-operative Bank cut the two-year fixed product transfer mortgage rate to 3.85 per cent.

The mortgage rates increased sharply in 2022 and the first half of 2023 in response to the Bank of England base rate increase from 0.1 to 5.25 per cent. Inflation has been falling, but banks and building societies are confident they will lend money to borrowers at a low rate. 

Lenders manage the base rate moves by the Bank of England by increasing or decreasing the price of their mortgage products. 

With the Bank of England deciding to hold the base interest rate at 5.25% for the third time in December 2023, the mortgage lenders likely priced the possibility of the decision.

Banks are aware the high mortgage rates put people off taking out mortgages; in 2024, a few banks have started cutting mortgage rates.  

According to Moneyfacts – the two-year fixed deal stands at 5.76%, the five–year fixed deal stands at 5.37%, and on January 1, the Standard variable rate (SVR) was 8.18%. 

Interest Rate Predictions UK 2024

The mortgage borrowers will sigh relief after the announcement that the Bank of England has decided to hold rates at 5.25%. The Bank's decision to hold rates was expected, and it was believed that the base rate UK would drop to 4 % in the next 12 months, but before the announcement, some economists suggested it could drop to 3.75%.

For the second month, three of the nine Bank's Monetary Policy Committee members voted for a rate increase, and the Central Bank said, if required, it would fight inflation. For the borrower, it means mortgages are almost as cheap as they go in the short term.

The money market expectations are priced into the mortgages, which came down from the peaks in December 2023, and the average two-year fixed rate deal fell below 6 per cent. Another cut over the last few days indicates the best buyers for the same period heading towards 4.5%.

The low-cost fixes have dropped below the level and are likely to continue downwards, going under 4% early in 2024. 

The signs of the downward movements are luring the buyers back towards the market, with surveyors reporting the demand has rebounded to the levels seen in April 2022. The asking price has declined, sales are sluggish, and the cost of living is increasing, but it is assumed that activities will pick up and people will get used to the new interest rates UK. 

For existing borrowers, this shows the end of cheap fixed-rate deals.

UK Interest Rate Forecast For The Next 5 Years

Following the latest UK main economic indicators, the BoE mortgage rates prediction on the interest rate is as follows -  5.3% for the end of 2023, 5.1% for 2024, 4.5% for 2024 and 4.2% for 2026. 

Will Mortgage Rates Go Down In 2023?

On December 14, 2023, the BoE announced it would keep the base rate at 5.25%, the highest in 15 years. The BOE has raised the base rate 14 times since December 2021 to reduce the UK's annual inflation rate, which has dropped to 3.9% from 11.1%. It is above the target rate of 2%, and the BOE stated it may raise interest rates UK further if inflation persists.

The market is pricing in that the Bank of England base rate will drop to 4.8% by July 2024, and by the end of 2025, it will fall to 3.6% before falling to 3.2% in five years. 

The average interest rate on a 2-year fixed rate mortgage is 6.29 per cent, where one may assume 75% loan-to-value; if the BOE increases the base rate further, then the mortgage rate will rise, but if it cuts the base rate in 2024, the mortgage rate will also decline. 

Mortgage Rate Forecast UK

Major lenders such as Halifax, Santander and HSBC started 2024 with major rate cuts. HSBC cut the rate on its 60% of the loan-to-value remortgage deal to 3.94 per cent, and Santander is prepared to cut a similar product to 3.89 per cent. This means the average two-year fixed mortgage rate across the market is 5.76%, while the average five-year fixed rate is 5.37%.

The mortgage lenders started cutting rates at the end of 2023, and the average fixed rates dropped for the fourth straight month in December 2023.

UK Mortgage Rates 2022

The interest rates UK have been rising rapidly since December 2021 after recording a low in August 2020 when the Bank of England reduced the base rate from 0.25% to 0.10% in response to the COVID lockdowns. 

In 2023, they brought many dramatic changes in interest rate predictions on how high UK interest rates will go. At the start of 2023, the UK interest rate was forecast to rise to 6.5% by the end of 2023, and the predictions changed after the summer of positive UK inflation data. Mortgage rates jumped in 2022 and likely peaked at 5.25%; there are predictions of base rate cuts in 2024 and house price rises. 

Lenders have been slashing rates to attract new business. The Co-op, Halifax, HSBC and Leeds Building Society are among those who cut fixed-rate mortgage deals by one percentage point in the month. 

UK consumer price inflation depicted a significant deceleration in December 2023, reflecting a drop from a peak of 11.1% in October 2022, which was identified as the highest since 1981. The prices decreased by 0.2% in November 2023. 

Mortgage Rates 2025 UK

The base rate of the Bank of England is 5.25%, which increased by .25 per cent in August 2023 and was considered the highest rate since 2007. Some sources forecast the base rate will be increased to 6 per cent, but the expected new rate will be 5.1% for 2024. A new decision was announced on December 14. Currently, the rates are the same.

It is estimated that in 2025, the rates will drop to 4.5%, and in 2026, they will be 4.2%. One cannot say anything related to the rate, but it is assumed it will depend on the inflation rate and the authorities' decisions. The eighth meeting is expected to be held in December, where one will know whether there will be a hike. 

Why Are Interest Rates Going up?

The BoE, the monetary policy committee, sets the interest rates as per the decision taken by the committee members who review the rates according to the UK inflation, and the base rate is the approved borrowing rate for the banks and societies.

These rates have a role in tracking inflation. The BOE maintained the bank rate at 5.25 per cent, making the 14 consecutive hikes in rate later in Dec 2021. The current inflation rate by target of 2% is 6.7%.

Should I Fix My Mortgage?

After over a decade of low-interest rates, mortgage costs are increasing. The Bank of England set the base rate for interest rates across the UK, which increased 14 times, and in December 2023, it stood at 0.1%; now, it is at 5.25%. 

Since the market has so many uncertainties, first-time buyers may be confused about deciding which mortgage option is best. You must know how long you will live in the house and how much risk you are willing to cope with.

The Bank of England's base rate increased in 2023 after the low interest rates; although the interest rates are declining, they are still above the 4 -5 per cent mark. 

Managing the volatile mortgage market can be difficult, so you can contact a mortgage broker or explore options to lower interest rates. 

Fixing the mortgage rate for a long time gives you higher control and greater certainty where you know exactly what your mortgage repayments will be for the next five to ten years. 

However, fixing for the longer term carries higher interest rates. Also, you do not know the market in five to ten years, so you may be taking risks by fixing the mortgage for a longer time. 

The fixed-rate mortgage has higher interest rates, so the repayment may be expensive. Fixing the mortgage for two years gives greater control and stability in the short term, and if the rate declines in two years, you can move into the new rate once the deal ends. 

If you want to fix the mortgage for five years or longer, it will be better if you plan to stay in the property for a long time. The mortgage interest rates can change a lot in five years. 

You want to fix the mortgage for ten years for peace of mind, although the interest rates are often higher for longer fixed-rate deals. You can get a long-term fixed-rate mortgage if you plan to stay in the home for a decade or more. If you suspect the years ahead will be financially unstable, you can plan by choosing a fixed-rate mortgage. 

Mortgage Interest Rate Forecast For The Next Ten Years UK

The financial market experts forecast the UK rates to remain at 5.25% until August  2024, and the first interest rate cut of 0.25%  will bring the rates back to 5%. The rates are expected to float around similar levels, and the expected cuts into 2025 may bring the rates down to 4.5%. 

The Office of Budget Responsibility expects the rate to stay above 4.5 per cent through the first quarter of 2028. Experts have no clear consensus on what will happen to mortgage rates UK in the next ten years. Some experts expect it to rise, and others predict it will fall moderately. 

HSBC became the latest big UK lender to announce rate cuts, and it has been offering a five-year fixed remortgage deal of 3.94 per cent for those borrowing up to 60 per cent of the property value. 

HSBC's two-year fixed rate for remortgage will dip below 4.50 per cent for the first time in early June, whereas the headline rate will hit 4.49 per cent again for those with at least 40% equity in their home. 

HSBC is offering a 10-year fixed rate deal starting at 3.99%, suggesting the rates will decline further.

Britain's largest mortgage lender, Halifax, cut the two-year fixed rate remortgage price from 5.64 per cent to 4.81 per cent. 

Why Are Mortgage Rates So High In The UK?

The mortgage rates peaked in October 2022 when the average 2-year fixed rate grew to 6.65 per cent. The Bank of England has been trying to stop consumers from spending and borrowing too much, so the base rate has increased. Inflation is 3.9 per cent, which means the prices of energy, food and services are high. 

Why Did The Bank Of England Hold The Base Rate At 5.25%?

Since December 2021, the BoE held the base rate 14 times to handle inflation. The fixed-rate mortgages have fallen below 5 per cent, while inflation remained unmoved at 6.7 per cent in September 2023; the decline in the UK jobs market led the BoE to hold the rate steady.

The outlook for the year remains positive, and it is expected that inflation will drop to 5 per cent by the end of 2024. The holdup in interest rates is positive news for homeowners on variable-rate mortgages, as their interest payments will remain stable. According to Lloyds, UK house prices are expected to drop until 2025 as the increased borrowing costs hit the housing market.