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Published 20 December 2023
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More Cuts in Mortgage Rates Predicted for 2024

Further mortgage rate cuts are widely forecast for 2024 amid a lender price war and predictions the base rate will be heading lower by May.

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UK mortgage rate forecast for 2024

There are hopes mortgage rates will carry on dropping during 2024, as financial markets continue to predict the Bank of England base will start falling by May.

Mortgage lenders continued to trim the cost of fixed-rate mortgages even after the Bank left the base rate of interest unchanged at 5.25% for the third time in a row in December. With a mortgage price war seemingly under way, and the next move in the base rate widely predicted to be down, there may be room for mortgage rates to carry on falling in the coming months.  

Fixed-rate mortgages edge lower

Encouragingly, Rightmove data for the week to the 12 December shows average rates on two- and five-year fixed-rate mortgages dropped lower at every loan to value (LTV) the property website monitors between 29 November and 12 December. However, it was notable that cuts were smaller than those seen in November, as was predicted could happen last month

As an example, the largest reduction across the first two weeks in December combined was 0.09 percentage points, on five-year fixed-rate mortgages at 60% LTV, where the average rate dropped from 4.55% to 4.46%. By comparison, the same average had dropped by 0.14 percentage points in the week to 29 November alone.

But while the pace of reductions has slowed, significant falls have been seen since the price of fixed-rate mortgages peaked at the end of July. Indeed, those with a 40% deposit would have paid an average rate of 5.90% to fix for five years at 60% LTV on 25 July; with the rate now at 4.46%, borrowers will be paying almost £127 per month less on a £150,000 mortgage arranged over a 25-year term, and saving more than £7,600 over the five-year fixed-rate deal period.

Lenders cutting rates to compete

This is welcome news if you’ll be looking for a new fixed-rate mortgage soon. And, according to UK Finance, the trade association for the UK’s banking industry, some 1.6 million fixed-rate borrowers will see their mortgage deal come to an end in 2024 and may want to find a new deal. 

That some lenders already appear to be engaged in a mortgage rate war is also encouraging for those wanting to see rates fall. According to various commentators, competition for mortgage borrowers that would normally be expected to start in January, after the festive property market lull, has already begun, with lenders attempting to undercut each other to sit at the top of the rate charts. Some lenders were so keen to be seen that they had rate cuts lined up for the day of the December base rate announcement itself. It is borrowers who stand to benefit. 

“While the [mortgage rate] lows seen in previous years remain far out of reach, should mortgage lending remain subdued then competition between lenders will heighten as they battle for business which could bring rates down further,” said Karen Noye, mortgage expert at wealth management firm Quilter, in an email to NerdWallet UK.

Base rate forecast to fall in May

A larger-than-expected easing in Consumer Prices Index (CPI) inflation to 4.6% in October, down from 6.7% in September, meant it was generally expected that the base rate would be left unchanged in December. Rate setters on the Bank’s Monetary Policy Committee (MPC) voted six to three in favour of leaving the rate at its 15-year high of 5.25% for the third consecutive meeting. The same majority had won out in November. 

Inflation has since fallen to 3.9% in November, also lower than had been expected. The next base rate announcement is on 1 February 2024, but financial markets are forecasting the first rate cut will come in May. Some believe there may be a chance it could start to fall in March. 

Should the Bank of England begin to feel confident enough to begin reducing interest rates then some mortgage borrowers could benefit – “particularly those on a variable rate or tracker mortgage as they would see a fall in their monthly bills”, said Noye. “If inflation continues its downward path, those looking for a fixed-rate mortgage may also find they are able to secure better deals as these rates are based on future market predictions.”

Image source: Getty Images

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