Mortgages are expected to remain affordable despite the Bank of England’s decision to hold interest rates at 5 per cent, according to experts in the industry. Inflation has remained steady at 2.2 per cent in the year to August, based on data released by the Office for National Statistics (ONS). While some economists believe this figure is not low enough to prompt the Bank to reduce rates, mortgage brokers anticipate a continued downward trend in home loan rates.
Nick Mendes of John Charcol brokers stated, “Wednesday’s inflation announcement does not change the clear, medium-term downward trend in mortgage rates. While there may be a temporary pause in competitive rate cuts, we expect rates to continue to decrease. By the end of 2024, five-year rates could drop to around 3.5 per cent, with five-year rates expected to be around 3.8 per cent.”
Aaron Strutt of Trinity Financial added, “It seems likely that lenders will continue to lower their rates even if the Bank of England does not make any changes on Thursday.” David Hollingworth of L&C Mortgages emphasized the intense competition among lenders, stating that they have been regularly repricing to stay competitive and keep rate improvements coming for mortgage borrowers.
Current market conditions show that the cheapest two-year mortgage rate is 3.99 per cent, available from Santander for buyers with a deposit of at least 40 per cent. Several lenders are offering five-year deals below 3.8 per cent, but these also require substantial deposits. Banks typically base their fixed mortgage rates on Swap rates, which reflect long-term predictions of future changes to the Bank of England base rate.
Despite expectations of a hold on interest rates following the recent inflation figures, most economists believe that another rate cut later this year is likely. Ruth Gregory, deputy UK chief economist at Capital Economics, explained, “The rise in services inflation suggests the Bank will likely pause on interest rate cuts on Thursday. We anticipate the next rate cut to occur in November.” Rob Wood, chief UK economist at Pantheon Macroeconomics, concurred, stating that the Monetary Policy Committee (MPC) is likely to cut rates again in November, given the downward trend in services inflation.
Looking ahead, there are three Bank of England MPC meetings scheduled before the end of the year, with the possibility of rate cuts in both November and December. Thomas Pugh of RSM UK expressed his views, saying, “Given the recent data, the Bank is likely to hold rates on Thursday, but there’s a good chance we could see two rate cuts at the end of the year.” If interest rates are indeed reduced in the coming months, mortgage costs for those on tracker and variable rates will also decrease immediately in response.
The potential rate cuts would be welcomed news for many, including households facing high mortgage rates. The Government has been critical of previous administrations, particularly the short-lived Liz Truss government, for the challenges faced by homeowners due to high mortgage rates. Following Liz Truss’s mini-budget in September 2022, mortgage rates began to rise as Swap rates increased.
While some individuals did experience higher rates when renewing mortgages shortly after the fiscal event, the current level of mortgage costs is primarily influenced by high interest rates aimed at combating inflation. Should interest rates be adjusted in the future, there could be further reductions in mortgage costs for borrowers.
Overall, the outlook for mortgages remains positive, with experts predicting continued affordability in the market. Despite the Bank of England’s decision to hold rates, the competitive landscape among lenders and the anticipated rate cuts later this year are expected to keep mortgage rates on a downward trajectory. Homebuyers and current homeowners alike can look forward to favorable mortgage options in the coming months.
