Are interest rates going down?

August 2023 saw the Bank of England (BOE) raise the base rate yet again, for the fourteenth consecutive time in fact, to 5.25%. This rate comes in at the highest level it has been in over 15 years, since the 2008 financial crisis.

The Bank of England has done so in an attempt to put a cool on the UK’s inflationary pressures, which currently sits at 7.9% (June 2023.) The annual inflation rate currently sits well above the UK’s target rate of 2%.

As a direct response to this, mortgage rates and the housing market have taken a hit. Mortgage lenders have been raising their rates sharply over the past few months, with a stark concern for further rate hikes to follow in the coming months, from the Bank of England. Of recent, the market has been pricing in further predicted hikes, with a prediction for the Bank of England base rate to peak at approximately 5.8% during the first quarter of 2024.

However, all is not doom and gloom. The 5.8% predicted peak is slightly lower than the 6% prediction that was made in July.

With bleak forecasts being predicted for the end of 2023 and 2024 combined, many will be keeping a nervous eye on the base rate over the coming year, none more so than homeowners.

For those who are set to come off their current fixed rate mortgage and on to a new mortgage deal, panic may be setting in, with sharp rises in mortgage rates leading to increased mortgage payments.

With the current unsettled nature of the market, homeowners will be eager to see interest rates come down. When will this be? Should I lock in my fixed rate mortgage now? These are questions many homeowners will be pondering over the coming weeks and months. In this article, we delve deeper into the questions at hand, with the aim of bringing some clarity during a very uncertain period.

 

Are mortgage rates going up or down in the UK?

As of 9th August, the average rate for a two-year fixed mortgage deal sat at 6.83%, whereas the average rate for a five-year fixed mortgage deal was 6.34%. The average standard variable rate (SVR) also stood at 7.85% during the beginning of August.

These rates come as the highest the UK has seen since the financial crisis in 2008, whereby it peaked at around 6.94%.

These current rates are a shock to the system for many, especially when considering at the end of 2021 average two-year mortgage rates were as little as 2%. In relation to the shorter term, mortgage rates have shot up by an average of 1.5%, as they were around 5.3% at the start of May 2023.

Economists at the International Monetary Fund (IMF) believe the rise in interest rates remains temporary and are set to peak by the early stages of 2024. Of course, there’s no way off really knowing what will be the case for interest rates over the coming months and years. However, one thing is certain. Until inflation comes down, it remains unlikely the Bank of England will lower the base rate. Which in turn, keeps mortgage rates high for the time being.

The Bank of England has predicted that the inflation rate will begin to drop significantly throughout the remainder of 2023. If predictions are true, the reduction in inflation would most likely lead to the end of rising interest rates.

The Bank of England and UK government will be playing a dangerous juggling act over the coming months, as they aim to steady the ship, steering the UK away from the grips of a recession.

Whether they will be able to do so, only time will tell.

 

What will happen if interest rates remain high?

The most obvious knock-on effect high-interest rates will have, for many homeowners, is a leap in their monthly mortgage payments. The approximate 1.4 million households whose fixed rate mortgage deal is coming to an end over the course of the second half of 2023, will nearly all see an increase in their mortgage rates and monthly mortgage payments.

Unfortunately for some, the increase in monthly payments will prove as too much of a squeeze on their finances. This will result in many homeowners being forced to sell up if they can no longer afford the increase in monthly mortgage payments.

Another knock-on effect is the housing market will see fewer first time buyers be able to get onto the property ladder. As a first time buyer, higher mortgage rates lead to much less bargaining power, with affordability checks being particularly stringent. Whilst interest rates remain high, mortgage lenders will make sure to rein in prospective first time buyers, with affordability checks being tougher to pass.

Lastly, we have seen house prices drop for the fourth consecutive month, as lower demand for properties set in. Forecasts from the Office for Budget Responsibility (OBR) have predicted that house prices could fall by 10% over the next two years. If the mortgage market fails to see a reduction in interest rates, mortgage rates will remain high and this in turn could lead to a bigger correction in house prices down the line.

 

Should I lock in a fixed rate mortgage deal now?

Those who are coming to the end of their fixed rate mortgage will be pondering the question of whether it is best to lock in their fixed rate mortgage deal now, or alternatively hope for more competitive fixed rate mortgage deals down the line.

Many will feel they are in the grips of a catch-22 scenario, predicting how the mortgage market pendulum will swing over the coming months.

As interest rates continue to be on the rise, fixing your mortgage rate now may be worth considering. However, as interest rates on long-term mortgage deals already remain high, you may come to regret doing so if the tipping point is near. For example, locking into a five- or ten-year fixed rate via the current mortgage rates could be costly, should interest rates begin to ease next year.

For those who are in this current predicament, it may feel as though you are rolling the dice on your future, with uncertainty looming heavily in the air.

In times of uncertainty, navigating your options remain imperative. Seeking financial advice from a professional mortgage broker can definitely help to put your mind at ease. Reputable mortgage brokers are well-equipped to assist you during tumultuous times, bringing some much-needed clarity and reassurance on the subject at hand.

 

Eden Hawk – Mortgage Brokers you can trust!

At Eden Hawk, we are proud to be a leading protection and mortgage broker in South Wales, offering expert advice both locally and across the UK.

Our team of dedicated mortgage advisors have helped thousands of people over the years in finding the most suitable mortgage solutions, catered to each individual’s specific requirements and needs.

Throughout our years of expertise, we have ensured all of our clients receive the most competitive mortgage solutions on the market. We will be by your side every step of the way, ensuring you receive the desired outcome.

Whether you need to remortgage, find the most competitive mortgage interest rate or even are worried about fixed mortgage rates increasing, our team of expert mortgage advisors can help.

From the outset, our goal at Eden Hawk has been simple: to assist as many house buyers and property investors as possible.

If you are in need of advice please contact us today for a free no-obligation initial consultation. One of our dedicated team will then be in contact to answer any questions or queries you may have.

Let us help to plan your financial future!