After mortgage rates started to rise in 2022, borrowers continued to feel the pain at the start of this year. However, thanks to the rate of inflation finally falling well into single digits and the base rate holding steady at 5.25%, lenders have been given the confidence to start bringing their interest rates down for consumers. (For more, see our previous article from October.)
Mortgage companies have money to lend, and with fewer customers at the moment, thanks to continuing impact of the cost-of-living crisis, they are starting to compete with one another.
In September, just hours after the Bank of England decided to keep the base rate where it was following 14 consecutive rises, Nationwide announced it was reducing rates on its fixed products. It then made further cuts twice in October, bringing its best two-year fix to 5.74% for first-time buyers and 5.59% for those remortgaging. At the same time, Halifax was offering a two-year fixed deal at 5.32% and HSBC one at 5.34%.
What are the experts currently predicting for inflation and the base rate?
Inflation has taken much longer than expected to come down. The rate at which prices are rising dropped to 4.6% in the year to October, down from 6.7% in the year to September. The sharp fall was due to cheaper energy prices.
Capital Economics (CE) predicts that it will come right down to 0.7% by the end of the 2024 and be around 1% in 2025.
As for the base rate, last September CE predicted it would peak at 4%, suggesting anything over 5% would hurt the market. But with inflation remaining stubbornly high, the Bank of England felt it had little choice but to keep raising its interest rate, which currently sits at 5.25%. The current forecast from CE is that this will stay where it is until the end of 2024, when it will drop to 4.75% before falling back to 3% by the end of 2025.
What do these predictions mean for mortgage rates?
These forecasts are great news for borrowers as they hopefully mean mortgage interest rates will fall significantly over the next couple of years.
Experts are suggesting that we could see five-year fixed rates at 4.5% by the end of 2023, with Halifax and Nationwide already offering deals at 4.73% and 4.74%, respectively. This is against a backdrop of the base rate at 5.25% and inflation around 5%. If those fall to sub-5% and sub-1% as predicted, we could see mortgage rates drop below 4% by the end of 2024.
Sarah Thompson, Managing Director at Mortgage Scout, says: “We’re delighted to see that forecasts for next year and beyond are looking more positive for homeowners with an anticipated drop in mortgage rates. What I would always advise, no matter what the current mortgage rates are, is to speak with a mortgage broker if you’re looking to buy or remortgage. What we can do that lenders can’t is compare the market for you and find the deal that is most suitable for YOUR circumstances.”
To find out the latest mortgage rates that could be available to you right now, you can book a free, no-obligation appointment with an experienced Mortgage Scout adviser via our website.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
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