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Will mortgage rates go down in 2024 UK?

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    On the 19th of September 2024, when the Bank of England (BOE) last had a committee, they chose keep the base rate at 5% which remains the lowest it’s been since since July 2023. This decision was made amidst fluctuating inflation rates and increased living costs.

    Since the end of 2023, 2024 has seen UK inflation drop from 4.4% to 3.9% at the end of Q1 2024. In June 2024, the inflation rate decreased even further, reaching 2%. However, in October 2024, inflation dropped sharply to 1.7%, the lowest its been in 3 and a half years!

    Throughout 2023, the Bank of England raised the base rate multiple times to control inflation, which peaked at 11.1% in October 2022. While this strategy reduced inflation throughout 2024, it remained above the 2% target. In August 2024, inflation held at 2.2%, but by September, it dropped below the Bank’s target, falling to 1.7%, the lowest in over three years. This decrease increases the likelihood of interest rate cuts in upcoming policy meetings.

    In the latest meeting, the base rate was reduced for the first time after being held constant across seven previous meetings since August 2023. This pause followed an extended period of 14 consecutive rate increases. Earlier this year, the Monetary Policy Committee decided on a more conservative increase of 0.25% in interest rates, compared to an earlier forecast of 0.5%. This adjustment, viewed as a significant improvement from the figures reported in May, brought some relief. Notably, experts had predicted a decrease between April and May, but the figures remained unchanged.

    Interest Rate Predictions

    Looking ahead, analysts now believe UK interest rates have peaked, with the base rate held at 5% as of September 2024. Earlier predictions of rates hitting 6% have been significantly revised, reflecting a softer economic outlook.

    It is widely predicted that the base rate will drop twice by another 0.25% further in second half of 2024 / start of 2025.

    Given the recent base rate drop and these new predictions, the landscape of mortgage rates in 2024 into 2025 is set to change. Let’s explore what this means for homeowners and potential buyers.

    Mortgage Rate Predictions 2024

    Mortgage rate predictions for 2024 / 2025 suggest further drops in the base rate. Bank of England’s decisions, inflation rates, and global economic events all play an essential role in shaping these changes. As of September 2024, the average rate on a two-year fixed deal sits at 5.10%, and the average rate on a five-year fixed deal sits at to 4.74%. These are hovering just below the highest levels since August 2008, around the peak of the financial crash. However now this base rate has dropped, we are likely to see rates start to decrease more and more to around the 4% mark.

    The last Bank of England meeting was on the 19th September 2024, when they decided to miantain the base rate at 5%. This could directly influence mortgage rates throughout the rest of 2024. Unexpected economic events could alter these predictions as well.

    Based on current market predictions, the Bank of England is expected to reduce the base rate by 0.25% in late 2024, followed by one or two additional 0.25% cuts in early 2025. This outlook depends on inflation continuing its downward trend, with inflation now sitting at 1.7% as of October 2024. If inflation remains stable, these interest rate cuts could further ease borrowing costs in the coming months.

    As inflation drops, we are starting to see a swing for 2-year and 3-year fixed rates over the longer 5-year rates, which will be the opposite of what we have seen over the last 18 months. We are already seeing mortgage rates drop from 5% to 4%, and by the end of the year, going into 2025, they are predicted to drop even further, potentially even to 3%.

    I can see a demand and trend for tracker mortgage rates in 2024 and the likelihood we may see new innovative products launched by the mortgage lenders. These could be tracker rates that would allow you to convert to a fixed rate during the term without paying extra fees. – Steve Roberts

    Mortgage Rate Predictions 2025

    Leading economists have updated their forecasts, predicting that the Bank of England’s base rate could fall to as low as 3% by the end of 2025, a slight revision from earlier expectations of 3.25%. This is due to softer inflation and wage growth projections. As a result, mortgage rates are also expected to decrease, potentially falling from their current levels of around 5% to about 3.5% by the end of 2025​.

    Goldman Sachs also aligns with this outlook, predicting the first rate cut could occur as early as May 2025. They suggest that rates could drop by 0.25% at every policy meeting, bringing the base rate down to 3% by May 2025. This could result in significant savings for households, easing the financial burden for many mortgage holders​

    With the Bank of England’s proactive approach to cutting rates, 2025 may bring more favorable conditions for the mortgage market, particularly for those looking to secure new loans or refinance existing ones.

    Fixed Rate Mortgages: Should You Fix Your Mortgage Rate Now?

    Over the last few weeks, mortgage lenders have pulled hundreds of fixed-rate mortgage deals and raised the mortgage rates on their best mortgage deals as they are worried the BOE may raise its base rate further.

    With the BOE base rate at 5% and the market pricing further increasing, you should consider fixing your mortgage if you are worried about how high-interest rates might go and whether you can keep up your mortgage monthly repayments.

    Even if you are currently on a fixed-rate mortgage, where the fixed period isn’t due to expire for another 6 months, it is possible to lock in a cheap rate now, which will start when your current fixed deal ends, avoiding any early redemption charges from your existing lender.

    Discuss your options with a knowledgeable advisor
    Put the odds of a successful mortgage in your favour with the help of a qualified and experienced mortgage broker.

    How is the Bank of England base rate set?

    The Monetary Policy Committee of the Bank of England is responsible for setting its official base rate. Meeting approximately every six weeks, MPC meets to decide on any potential changes and publishes its decision and meeting minutes on its website.

    The decision on setting the base rate is informed by several economic indicators, including employment, inflation, and GDP. The current Governor of the Bank of England Andrew Bailey continues to use an established list of 18 economic indicators as part of his Monetary Policy Committee decision-making process outlined by former Governor Mark Carney.

    When is the market predicting mortgage rates will change?

    The market’s predictions regarding mortgage rates have seen significant changes recently. As of 19th September 2024, the Bank of England (BoE) kept the base rate at 5%. This decision was influenced by the drop in inflation, which was 2.2% annually but has now dropped to 1.7% now well below the BoE’s target rate of 2%.

    Looking further ahead, UK interest rates are now expected to be at their peak. This is a notable decrease from earlier this month when the markets had priced in rates rising as high as 6.5% by March 2024.

    Given these new predictions, homeowners and potential buyers alike should carefully evaluate all their mortgage options when making this important decision. The Bank of England will next meet on the 7th November 2024, to decide whether interest rates will remain the same or decrease, it is likely the base rate will drop again in 2024. If inflation continues to drop in the second half of 2024 it is believed the base rate will continue to remain the same or even drop slightly.

    What are the key indicators that will impact interest rate changes?

    The Bank of England uses several economic indicators when deciding whether or not to increase interest rates, including:

    • Inflation: As of October 2024, UK inflation dropped to 1.7%, a significant decrease from 2.2% in August. This brings inflation below the Bank of England’s 2% target for the first time in years.
    • Official Support for Low Rates: The Bank of England’s Monetary Policy Committee (MPC) held the base rate at 5% in September 2024, with expectations of cuts in 2025 as inflation continues to fall.
    • Economic Developments: The UK’s GDP grew by 0.4% in the first quarter of 2024 and is estimated to have increased by 0.3% in the second quarter. The slight economic growth reflects the gradual recovery.
    • Bank of England Forecasts: The Bank forecasts GDP growth of 0.3% in the second half of 2024, in line with earlier expectations, as inflation cools and economic conditions stabilize.
    • Unemployment: The UK unemployment rate remained steady at 4.3% from April to June 2024, with minimal change from the first quarter.
    • Wage Growth: Regular pay (excluding bonuses) increased by 6.2% annually between March and May 2024, while average total pay rose 5.8%, showing continued wage growth during the inflationary period.
    • Economic Forecasts: The UK economy is expected to grow by 0.3% in 2024 and accelerate to 0.9% in 2025, aided by falling inflation and potential interest rate cuts in 2025.

    What to do with my mortgage in 2024?

    The ability to remortgage and fix your mortgage at the same sort of rate has become more difficult over recent years as the rules surrounding the affordability checks when applying for a mortgage were tightened leaving some borrowers stranded on their existing deals.

    It’s important to calculate the impact of future interest rate rises and seek advice from a mortgage expert ahead of time by following the steps below. Whether you are on a tracker mortgage, variable rate mortgage, or looking to remortgage your existing fixed rate deal that is coming to an end the steps below will take you a few seconds but could prevent your mortgage repayments crippling your finances in the future and help you secure fixed mortgage rates while they are still available.

    Step 1 – Determine your current mortgage situation

    Before you can determine the best course of action for your mortgage, it is important to understand your current situation. This information includes what type of mortgage (variable, fixed rates, or tracker rates), your current rate, and loan term. If you need help understanding these details further, contact your mortgage lender or review your documents to gain a clear picture.

    Step 2 – Calculate the impact of an interest rate increase on your mortgage payments

    An interest rate rise calculator allows you to quickly assess the potential effects of an increase in interest rates on your monthly mortgage payments. Simply input details such as loan amount, term length, and current interest rate before increasing it in various scenarios to calculate potential changes in monthly payments based on different interest rate scenarios and figure out how much additional funds would need to be set aside in case an increase takes place. This tool gives a good indication of what to budget for in case an interest rate increase occurs.

    Step 3 – Seek advice from a mortgage expert

    If an interest rate increase will have an adverse impact on your mortgage payments, consulting a mortgage expert is highly advised. They can assess the housing market as well as your current financial situation and assist in understanding potential solutions such as fixed rate or alternative types of loans; also helping find you the most competitive rates and terms possible according to your unique situation.

    Step 4 – Act quickly if you decide to fix your mortgage rate

    When considering fixing your mortgage rate as the optimal course of action, acting swiftly is key. The lowest fixed-rate mortgages offers often vanish quickly when there are indications from the Bank of England of potential rate hikes; take immediate steps to secure one before it disappears! A mortgage expert can help compare different mortgage deals and assist in the application process to make sure you secure an excellent rate.

    The best way to find out your mortgage options

    One way to find the right mortgage options for you is to collaborate with an independent mortgage adviser. While price comparison sites may seem like an effective solution, it’s important to remember that many deals only available through advisers aren’t listed here and may only appear after credit checks have taken place – which could negatively impact future applications for loans.

    Due to these considerations, working with an independent mortgage adviser is often beneficial; they can assist in finding you the most beneficial mortgage deal from lenders that will actually lend to you – approximately 70% of borrowers opt for this route. To start off your journey toward refinancing, reach out to an adviser or mortgage broker. With fixed-rate deals being withdrawn on a daily basis, it’s never been more important to be on top of your mortgage options before we see further interest rate rises.

    Discuss your options with a knowledgeable advisor
    Put the odds of a successful mortgage in your favour with the help of a qualified and experienced mortgage broker.

    Further reading

    FAQs

    In 2024, UK mortgage rates are expected to decline gradually, as the Bank of England lowers its base rate in response to easing inflation and slowing economic growth. As of December 2023, the average rate on a two-year fixed deal is 6.1%, and for a five-year fixed deal, it’s 5.5%. Forecasts suggest that the Bank of England base rate, which influences mortgage rates, might drop from 5.25% to 4.5% by the end of 2024. However, these are only estimates, and actual rates will depend on various factors such as the economy, inflation, and the Bank of England’s decisions. It’s always advisable to consult with a mortgage advisor when making decisions related to mortgages.

    Interest rates are likely to stay high for the first half of 2024, before falling significantly in the second half of the year. According to the IMF, the recent spike in real interest rates is temporary and should revert to pre-pandemic levels once inflation is under control. The Bank of England is expected to start cutting its base rate in February 2024, followed by steep cuts until mid-2025. This will have a positive impact on long-term mortgage rates, which are expected to drop below 5% by the end of 2024.

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    Picture of Steve Roberts (MAQ)
    Steve Roberts (MAQ)

    Stephen Roberts MAQ is the founder of YesCanDo Money, one of the UK's largest no-fee mortgage brokers. With more than 30 years of hands-on experience in the mortgage industry, Steve really knows the ins and outs of mortgages. He's become a trusted expert and authority in the field, thanks to his deep understanding of the mortgage landscape. Speak to Steve or a member of his knowledgeable team today by completing our contact form:

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