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July 12

Will Mortgage Rates Go Down In 2024?

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Mortgage rates are not expected to fall further this year, but rising wages are likely to improve affordability for buyers as house prices stay flat. This trend offers a bit of hope for those looking to enter the housing market, as the balance between income and property costs becomes slightly more favourable.

Buyers are currently closely monitoring the Bank of England’s Base Rate announcements. Any changes in the Base Rate can significantly influence mortgage rates, and therefore the cost of borrowing. In June last year, the average five-year fixed-rate loan for a 75% loan-to-value mortgage peaked at 5.8%. This surge added hundreds of pounds to monthly mortgage repayments for buyers and homeowners, making it a challenging time for those looking to secure a new home loan.

Today, the average rate for that same mortgage has now dropped to 4.4%. This decline in rates provides some relief, translating into lower monthly payments and making homeownership slightly more accessible. For instance, the difference between a 5.8% and a 4.4% interest rate can mean substantial savings over the course of a mortgage.

This reduction has a noticeable impact on monthly mortgage payments. A lower interest rate means that a larger portion of each payment goes towards paying down the principal balance, rather than just covering interest. This shift can help buyers build equity in their homes more quickly, and reduces the total amount of interest paid over the life of the loan.

 

Mortgage value £200,000 property value, 25% deposit £300,000 property value, 25% deposit £400,000 property value, 25% deposit £500,000 property value, 25% deposit
5.8% monthly repayments £1,106 £1,422 £1,896 £2,370
4.4% monthly repayments £962 £1,237 £1,650 £2,063

 

Mortgage rates unlikely to drop below 4% in 2024

Buyers who are waiting for a significant drop in mortgage rates in 2024 may find themselves disappointed. Current trends indicate that mortgage rates are not expected to decline much further this year, even if inflation and the Base Rate see some reduction. 

Richard Donnell, our Executive Director of Research, notes, “Expectations of lower interest rates are already built into today’s fixed-rate mortgages. While lower interest rates could lead to further modest declines in mortgage rates, the extent of these decreases will depend on how low money markets predict base rates will fall.”

Currently, economists anticipate that base rates could reduce to 3.5% by the end of 2025. This projection implies that mortgage rates are likely to stay around the 4% range or higher. Therefore, buyers should prepare for mortgage rates to remain relatively stable, rather than expecting substantial drops in the near future.

 

Why are mortgage rates going down?

Mortgage rates began to decline in the latter part of 2023, following a drop in inflation from 6.3% in September to 4.2% in December. By February of this year, inflation had further decreased to 3.8% and is anticipated to reach the 2% target in the near future.

Despite this, the Bank of England has maintained the base rate at 5.25% since August 2023, as inflation remains higher than initially predicted. The Bank is expected to reduce the base rate in its June meeting and aims to lower it to 3% by the end of 2025.

The base rate set by the Bank of England affects the interest rates that commercial banks offer for borrowing and savings. It plays a crucial role in determining how much individuals pay for loans and earn on deposits.

 

What factors affect interest rates?

Inflation is currently driving up interest rates in the UK. Inflation occurs when an increase in demand or a decrease in supply causes prices to rise.

At the end of 2021, the Bank of England began raising the base rate to combat rising inflation and help reduce the increasing costs of everyday items like food, petrol, gas, and electricity. This strategy has led to a significant decrease in inflation over time. Despite this progress, the Bank of England needs to maintain a higher base rate to ensure inflation returns to its target of 2%.

In addition to domestic factors, global events can also affect inflation. For example, wars, pandemics, and disruptions in major transport routes such as the Suez Canal can impact global supply chains, leading to higher prices for goods and services. These global shocks can make it harder to control inflation and influence the decisions made by the Bank of England regarding interest rates.

 

MORE Property blogs HERE: 

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Cashing Out of Buy To Let? Top Places to Make a Quick Sale

Buy-to-let Home Insurance UK

Why Are Buy-to-Let Mortgages Interest Only?

Is Buy-to-Let Still Profitable Today?

A Comprehensive Guide to Buy-to-Let Mortgages

First-Time Buyer’s Guide to Buy-to-Let Mortgages

 


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Mortgage rates unlikely to drop below 4% in 2024, What factors affect interest rates?, Why are mortgage rates going down?, Will Mortgage Rates Go Down In 2024?


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