1. Home
  2. Mortgages
  3. Mortgage Rate Uncertainty as Base Rate Forecasts Slip to September
Published 29 May 2024
Reading Time
6 minutes

Mortgage Rate Uncertainty as Base Rate Forecasts Slip to September

Off-target inflation figures mean investors now think the first base rate cut is most likely in September. Here is our new mortgage rate forecast based on this latest development.

Written By

UK mortgage rate forecast for June 2024

Mortgage borrowers face an anxious wait to see what will happen to mortgage rates next after higher-than-expected inflation appeared to end hopes of a June cut in the base rate.  

Official data from the Office for National Statistics revealed Consumer Prices Index (CPI) inflation dropped to 2.3% in April, down from 3.2% in March, and the lowest level seen in almost three years. 

However, with economists expecting to see a figure closer to 2.1%, financial markets reacted by pushing back the expected timing of a first cut in the base rate of interest. A reduction in June is now widely considered unlikely, while the odds of a cut in August have lengthened too. Instead, many investors think it could be September before the rate is lowered from its current level of 5.25%.     

None of this will have gone unnoticed by mortgage lenders. The week before the inflation announcement, there were signs that mortgage rates had started moving in the right direction, with lenders including Barclays, HSBC, TSB, Virgin Money, and Leeds Building Society all lowering the cost of some mortgage deals. 

Shortly afterwards, Halifax, Santander, and TSB (again) confirmed they would cut certain rates. However, an element of unease remains. Barclays, which had lowered rates only a week earlier, revealed that some would rise again.

“[Inflation] uncertainty has created volatility in the mortgage market with lenders seeming to be stuck on a rate seesaw which will be disheartening for existing mortgage holders and would-be first-time buyers alike,” Danni Hewson, head of financial analysis at investment platform AJ Bell, told NerdWallet UK. “It’s been impossible to second guess what might happen next so the best advice is for individuals to make decisions based on their own circumstances and what they can afford.”

Fixed rates now higher than at start of the year… 

There will be frustration if the downward momentum that seemed to be building does stall. In line with last month’s predictions, average rates on fixed-rate mortgages increased steadily throughout May, and are now higher than at the beginning of the year. The eye-catching rate cuts seen throughout January have been more than wiped away. 

An even bigger difference can be seen in the cheapest fixed rates lenders are willing to offer. According to Rightmove, the lowest two-year fixed-rate mortgage available on 22 May was 4.75%, notably higher than the 4.54% that could be found at the start of the year. Similarly, in the market for five-year deals, the lowest rate on offer has increased from 4.19% to 4.34% across the same period.   

“At the moment, without a base rate reduction, mortgages seem to be higher than they need to be and the current pricing fluctuations will continue,” Aaron Strutt, product and communications director at mortgage broker Trinity Financial, told NerdWallet UK. 

“Fixed mortgage rates need to be closer to 4% for borrowers to feel like they are getting reasonable value for money. They do not want to pay 5% or 6% even if this is roughly the historical long-term cost of mortgages. I think that rates will come down if the base rate is lowered and this will give more confidence to the market.”

…But markets still expect a base rate cut 

Around two weeks before the latest inflation figures were confirmed, the Bank of England voted to keep the base rate on hold at 5.25% for the sixth time in a row. 

Among the nine members of the Bank’s Monetary Policy Committee (MPC) who decide what happens with the base rate, two voted for a reduction to 5%, while seven voted for no change. At the previous meeting in March, only one member had voted for a cut.  

Subsequent comments by the Bank and its Governor, Andrew Bailey, left markets predicting that the first cut in the rate was most likely to arrive this August. A further reduction was also being predicted later in the year. 

However, the inflation data saw the goalposts move again. As well as the headline CPI measure falling short of the expected mark, the closely watched services inflation came in at 5.9%, much higher than the forecast of 5.4%.  

“Inflation has proved a wily foe and predicting its temperature has been incredibly difficult,” said Hewson. “The headline rate might have fallen to within touching distance of the Bank of England’s 2% target but inflation in the service sector and at the important core has barely shifted month on month.”

The next round of inflation figures will be announced the day before the next base rate announcement on 20 June. However, based on what is known now, the markets suggest the likelihood of a rate cut in June has been greatly reduced – some commentators believe it’s off the table altogether. 

For many experts, a reduction in August remains a realistic possibility, but the markets are less convinced than they were before. Instead, it is a cut at the following rate-setting meeting that investors are backing the strongest. 

“At the moment the data would suggest the first base rate cut won’t materialise until September at the earliest, that’s certainly what markets are pricing in, but there is still a plethora to pore over between now and the next MPC decision,” said Hewson.

Waiting game continues for borrowers 

The hope among those eyeing a fixed-rate mortgage will be that lenders are measured in their reaction to the suggestion of a base rate cut delay. Base rate expectations are a key influence on the fixed mortgage rates that lenders set, and so far this year the predicted timing of the first rate cut has gradually fallen further into 2024.  

For borrowers with a tracker mortgage, or paying a standard variable rate, nothing changes until the base rate moves, and the rate has been at a 16-year high since August last year. Unfortunately, the wait for their mortgage rates and monthly repayments to start coming down seems likely to go on. That predictions over how far and fast the base rate may fall are also being reined in will only add to the frustration.  

“If core and service inflation remain sticky, if wage growth remains uncomfortably high and if the economy stays resilient it’s unlikely we’ll see more than one or perhaps two rate cuts by the end of the year,” said Hewson. “Even the suggestions that rate setters are poised to act will impact swap rates and in turn impact decisions by lenders. But after a number of false dawns, caution is likely to be the watchword.”

Image source: Getty Images

Dive even deeper

Stop Trying to Time the Housing Market and Jump In, say Experts: Tips for First-Time Buyers

Stop Trying to Time the Housing Market and Jump In, say Experts: Tips for First-Time Buyers

Higher interest rates, tighter affordability checks and rising bills have knocked the confidence of many first-time buyers. Sitting tight and waiting for the perfect conditions is understandable. But, if you’re in it for the long term, now could be as good a time as any to jump into the UK housing market.

What is a Mortgage in Principle?

What is a Mortgage in Principle?

Getting a mortgage in principle can give you an idea of whether a lender will offer you a mortgage and for how much. Having such an agreement doesn’t guarantee you’ll be offered a mortgage when you properly apply, but it can show estate agents and sellers you’re serious about buying.

Mortgage Rates Begin to Rise as Base Rate Delay Predicted

Mortgage Rates Begin to Rise as Base Rate Delay Predicted

Higher mortgage rates could be on the way as market expectations realign to the first base rate cut coming in August. Here is our latest mortgage rate forecast.

Back To Top