NEWS: Are mortgage rates going down? [June 2024]

31-May-2024
31-May-2024 14:46
in News
by Sam Hodgson
Are mortgage rates going down

Inflation is at its lowest level in three years, and financial experts say mortgage rates mortgage rates could drop in June.

According to the Consumer Price Index, inflation is at 2.4%, only 0.4% above the government's target of 2%. While inflation isn't dropping as quickly as many have hoped, it may still bring positive news regarding mortgage rates.

Consistently stubborn inflation shows that there is still spending activity despite high interest rates, suggesting that the economy is still strong enough for people to be spending their cash more than saving it. That being said, the latest inflation figures take the BoE very close to its target, making a rate drop all the more likely.

While the Bank of England suggested earlier in May that we could see cuts as soon as June, it would only commit to a reduction if inflation was dropping sustainably. 

Bank of England governor Andrew Bailey says, “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgment afresh...But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.”

Bailey also went on to state that the committee would need to be fully confident that it could keep inflation below its 2% goal before it committed to dropping the bank rate. It's worth noting that some economists are less confident that the base rate will drop in June because inflation is still above the Bank of England's target.

The government's mission to combat sticky inflation is proving challenging, as the Bank of England chose to keep the base rate at 5.25%. The base rate has stayed the same since August 2023, when it was upped to 5.25%. 

Keeping the Bank of England base rate at 5.25% means putting mortgaged households under continued financial strain amid the ongoing effects of the cost-of-living crisis. 

Despite no recent changes to the base rate, there was a flurry of activity in the first few months of 2024, and there is still optimism that rates will drop later this year. The market seems to be recovering - many first-time buyers and investors are buying despite high costs after holding off in 2023.

Although the current inflation rate is still slightly above the target of 2%, it's a considerable improvement from just over 11% in 2022.

The inflation rate reached its highest point in over 40 years in October 2022, and after nearly two years of high interest rates, inflation has been gradually dropping.

As recently as December 2021, interest rates were at their record low of just 0.1%, meaning that the bank rate is now over 50 times higher than it was a year and a half ago.

So what does this mean for mortgage rates and affordability going forward?

In this post, we provide expert insight into the latest thoughts from our mortgage brokers, along with insight into what caused interest rates to rise last year, what mortgage rates will do next, and how a decrease in mortgage rates could affect your repayments.

Related: Spring Budget 2024: 5 Key Property Market Takeaways

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What Do The Experts Say?


What Caused Interest Rates to Rise Last Year?


How is The Mortgage Market Affected By Interest Rates?


What Mortgage Types Are Most Affected By Interest Rate Changes?


Are Mortgage Rates Going Down Now?


What Do Lower Mortgage Rates Mean for First Time Buyers?


How Can You Find an Affordable Mortgage in 2024? 

What Do the Experts Say?

George Abouzolof

George Abouzolof

Senior Finance Broker CeMAP

The decision to keep the base rate at 5.25% doesn’t come as a surprise. Inflation is still in excess of 3% and swap rates have ticked upwards in recent weeks, although we are still expecting the base rate to fall towards the end of the year. Mortgage rates have also been squeezed upwards in light of the swap rates.

One factor that may have prevented inflation from dropping quickly is that the UK economy exited the recent recession and grew by 0.6% between January and March.

Alex Chambers

Alex Chambers

Senior Private Client Adviser

With inflation forecast to continue falling, financial markets expect the Bank of England to cut rates to 4.75% by December 2024. 

The economy is on the mend. It grew more than expected, by 0.6% in the first quarter of the year, meaning that we are no longer in a recession. According to Halifax, UK house prices also rose by 0.1% in April. 

And how about our readers?

Just 13% of participants believe interest rates will rise over the next 12 months, while87% expect either a decrease or for rates to stay the same.

This sheds some light on the fixed or tracker mortgage debate for first-time buyers and those remortgaging in the next coming months.

Interest Rates

This sheds some light on the fixed or tracker mortgage debate for first-time buyers and those remortgaging in the next coming months.

Read our full survey results »

How Will a General Election Affect The Economy?

On the same day that the latest inflation numbers were revealed, Prime Minister Rishi Sunak announced that a general election would be held on July 4, 2024. In his speech, he summarised his mission in parliament as one to "restore economic stability."

This, combined with having the election so soon after the June base rate announcement on the 20th of June, suggests that economic stability will be a key talking point in the lead-up to the election.

It is common for the economy to experience some volatility during elections and periods of political uncertainty. Businesses may delay investment decisions amid this instability, potentially slowing economic growth.

Issues raised during and after an election can sway consumer confidence, impacting spending and saving behaviour. Election outcomes can also shift expectations about inflation and interest rates, influencing borrowing costs and investment.

Furthermore, international perceptions of the UK economy, shaped by political stability and economic policies, can affect foreign investment and trade relations.

The overall impact of a general election on the UK economy hinges on the winning party's policies, post-election political stability, and businesses' and consumers' reactions to these changes.

Our Expert Says...

George Abouzolof

George Abouzolof

Senior Finance Broker CeMAP

It boils down to consumer confidence - if there is little to no perception of trust in a party’s leadership, this affects exchange rates and the economy's overall performance. 

Choosing to announce the general election just after the inflation numbers were released was certainly a strategic move from Rishi Sunak, and the economy is likely to play a large role in this year’s election debates.

What Caused Interest Rates to Rise Last Year?

The Bank of England's monetary policy changes – steadily raising the base rate - is a measure to combat inflation.

Making borrowing more expensive stabilises inflation and slows the economy; with more people saving and spending less, price rises begin to slow.

However, 2023 saw the energy crisis continue and geo-political situations worsening – the ongoing war in Ukraine – which has further impacted the Bank of England's changes to interest rates.

All these factors added up to send interest rates through the roof.

The graph below helps to visualise the relationship between inflation in the UK and the BoE's base interest rate:

Are mortgage rates going down

 

Source: Statista

As you can see, the base rate surge since 2021 has largely been a reaction to soaring inflation. And although we still have a way to go before the Bank of England reaches its goal of 2%, inflation is dropping gradually.

Related: Is Switching Lenders Really Worth It?

How is the Mortgage Market Affected By Interest Rates?

Here are 3 tables comparing some of the best mortgage rates available on the market from the past 12 months

You can see how the mortgage market has changed over the last 12 months, and where the rates sit currently: 

March 2022 

 
Term 
Product 
Type 
LTV 
Rate 
Subsequent Rate 
Product Fee 
ERC 
2 years 
Fixed 
Purchase 
60% 
1.49% 
4.9% 
£999 
Yes 
5 years 
Fixed 
Remortgage 
60% 
1.89% 
3.99% 
£1495 
Yes 
10 years 
Fixed 
Remortgage 
75% 
2.46% 
3.99% 
£995 
Yes 

 

November 2022 

 
Term 
Product 
Type 
LTV 
Rate 
Subsequent Rate 
Product Fee 
ERC 
2 years 
Fixed 
Purchase 
60% 
3.60% 
6.49% 
£999 
Yes 
5 years 
Fixed 
Remortgage 
60% 
4.83% 
6.24% 
£995 
Yes 
10 years 
Fixed 
Remortgage 
75% 
4.89% 
5.5% 
£995 
Yes 

 

March 2023 

 
Term 
Product 
Type 
LTV 
Rate 
Subsequent Rate 
Product Fee 
ERC 
2 years 
Fixed 
Purchase 
60% 
4.14% 
7.49% 
£999 
No 
5 years 
Fixed 
Remortgage 
60% 
3.89% 
7.49% 
£999 
Yes 
10 years 
Fixed 
Remortgage 
75% 
4.04% 
7.49% 
£999 
Yes 

 

September 2023 

 
Term 
Product 
Type 
LTV 
Rate 
Subsequent Rate 
Product Fee 
ERC 
2 years 
Tracker 
Purchase 
60% 
5.39% 
8.4% 
£999.00 
No 
5 years 
Fixed 
Remortgage 
60% 
5.12% 
6.9% 
£490.00 
Yes 
10 years 
Fixed 
Remortgage 
75% 
4.91% 
6.2% 
£999.00 
Yes 

 

March 2024

 

Term 
Product 
Type 
LTV 
Rate 
Subsequent Rate 
Product Fee 
ERC 
2 years 
Tracker 
Purchase 
60% 
4.44% 
8.74% 
£0
No 
5 years 
Fixed 
Remortgage 
60% 
4.24% 
7.99% 
£490.00 
Yes 
10 years 
Fixed 
Remortgage 
75% 
4.63% 
7.99% 
£999.00 
Yes 

Source: Moneyfacts 

When interest rates rise, it becomes more expensive for consumers to borrow money. Naturally, this includes mortgages. Higher interest rates have affected the housing market in a number of ways:

Lower demand - Higher interest rates can make mortgages less affordable for first time buyers, leading to lower demand for homes.

Reduced affordability – Rising rates also affect second property buyers and BTL investors. Their mortgage payments could go up, meaning they may need to raise rent to compensate. Or, their projected rent won't meet the affordability for a mortgage on a new investment property, so they don't buy, reducing demand.

Read blog: Moving To The South West From London

What Mortgage Types Are Most Affected By Interest Rate Changes?

If you have a mortgage with a variable interest rate – a rate that closely follows the Bank of England's base rate - you will have seen your mortgage costs go up throughout 2023.

However, if you're on a fixed-rate mortgage, you might have yet to see changes, depending on the length of your term. But you could still be stung when your deal ends and you do remortgage. Currently, many homeowners on the tail end of a low fixed-rate mortgage are waiting with bated breath in hopes that rates will drop before they remortgage to a new deal.

Other property owners are taking the hit and switching to a variable rate in hopes of switching to a cheaper deal later this year.

Monthly increases in mortgage payments have been more acute for those whose fixed-rate mortgages ended and they have automatically switched to their provider's SVR (standard variable rate) – these are typically the most expensive interest rates to pay.

If you're looking to remortgage in 2024, we recommend comparing fixed and tracker mortgages to see which may be more suitable to you and offer the best available deal.

And if you're currently on a very low rate and want to raise additional finance without remortgaging, a second charge mortgage could help you protect your current deal.

Related: What is a Green Mortgage, and how do they work?

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Are Mortgage Rates Going Down Now?

At the beginning of 2024, we were seeing mortgage rates drop below 4% for the first time since the Autumn mini-budget. However, with inflation remaining relatively stubborn, mortgage providers have been pulling rates left and right.

Additionally, there's a certain level of political uncertainty surrounding a potential general election. This means that while the property market itself seems to be recovering from the instability that COVID-19 brought, mortgage products are chopping and changing and likely will stay like this until the base rate is reduced.

Last year, the demand for mortgages was lower, with many prospective buyers holding off until the market was more stable and many would-be buyers simply unable to afford homes amid the elevated costs. Because of this, lenders became more competitive over the smaller mortgage demand, lowering results to attract business.

Since January 2024, buyers have been entering the market with renewed confidence. Because of this, house prices are slowly beginning to pick up. While most mortgage deals are stuck between the 5% and 6% mark, there are some reasonable offers out there considering the circumstances. Overall, there is faith that we will see a bank rate drop later this year, with mortgage rates to follow.

Related: How bridging loans can help you plug a funding gap and secure your property.

Need a refresher on how much you can borrow? Use our mortgage calculator below:

How much can I borrow?

What Are The Current Mortgage Rates?

Here's a table of current mortgage rates that we've recently secured for clients: 

2 Year Tracker

Up To £5m

4.94% APR

2 Year Tracker

Subsequent rate 6.99%

LTV - 60%

APRC 8.4%*

Product Fee £999

Free standard valuation

Early redemption charges

As of 10th January 2024

5 Year Fixed

Up To £1.5m

3.89% APR

5 Year Fixed (Remortgage)

Subsequent rate 6.25%

LTV - 60%

APRC 6.1%*

Product Fee £999

Early redemption charges

As of 10th January 2024

2 Year Fixed

Up To £1.5m

4.44% APR

2 Year Fixed (Remortgage)

Subsequent rate 6.25%

LTV - 60%

APRC 6.1%*

Product Fee £999

Early redemption charges

As of 10th January 2024

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What Do Lower Mortgage Rates Mean for First Time Buyers?

With a potential decline in mortgage rates forecasted, it may be tempting to postpone plans until the lowest rates arrive – this may be true not just for first time buyers, but also those remortgaging.

However, a compromise could be securing a variable rate mortgage, so if rates do go down, you're not missing out.

One piece of positive news for first time buyers is the specialised mortgage products still available – deals tailored to first time buyers specifically - and lower house prices in affordable areas.

The best strategy is to consolidate your finances, understand your borrowing power, and seek a mortgage broker's help to find a deal that best product for you.

How Can You Find an Affordable Mortgage in 2024?

Despite current optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.

We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.

Related: What is a professional mortgage and can you get one?

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, give us a call at 0203 900 4322 or book a free consultation below.

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