1. Home
  2. Mortgages
  3. More Mortgage Rate Cuts Possible After Surprise Inflation Drop
Published 27 September 2023

More Mortgage Rate Cuts Possible After Surprise Inflation Drop

There are hopes that more mortgage rate cuts may be on the way after a base rate rise that was expected never happened and if competition among lenders for borrowers intensifies. Here are our latest mortgage rate predictions.

Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.

UK mortgage rate forecast for October 2023

The odds that mortgage rates will continue falling in October may have shortened after the Bank of England left the base rate of interest unchanged at 5.25% at its latest rate-setting meeting on 21 September.   

The decision brought to an end a run of 14 straight increases in the base rate, during which many mortgage holders have borne the brunt of attempts to lower inflation in the UK. The announcement that rates were being kept on hold came the day after official data revealed an unexpected fall in inflation in August. 

Fixed mortgage rates have already been dropping steadily for the past two months, even as the base rate continued to rise. Now the hope is that mortgage lenders will continue competing with one another for the attention of borrowers and will look to lower rates even further.

Nerdwallet Logo Partner Spotlight

Mortgage Rates

NerdWallet has partnered with Koodoo to provide mortgage comparisons from the UK’s leading providers

Nerdwallet Logo Partner Spotlight

Get Fee-Free
Mortgage Advice

NerdWallet has partnered with L&C, the UK’s leading fee free mortgage broker, to offer you expert advice

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.

Base rate on hold…

The decision to keep the base rate of interest on hold at 5.25% had not been widely forecast. Ahead of the publication of the latest inflation figures the consensus was that the base rate would increase again in September, most likely by 0.25 percentage points to 5.50%. 

But once it was confirmed that Consumer Prices Index (CPI) inflation had fallen in August, sentiment began to sway. The slowdown in inflation was small, dropping to 6.7%, from 6.8% in July. But it was enough to convince a majority of the members of the Bank’s rate-setting Monetary Policy Committee (MPC) that another rise in the base rate wasn’t immediately necessary.

…but falls may be some way off

For the first time since November 2021, borrowers with tracker mortgage deals will have seen a base rate announcement come and go without their monthly repayments rising. 

Whether the base rate is at the peak of this rate cycle or more increases lay ahead remains to be seen. The members of the MPC certainly weren’t all on the same page – five voted for ‘no change’ while four wanted to see a 0.25 percentage point rise. However, some experts believe the rate could remain unchanged when the MPC meets next on 2 November. 

“We only get one set of inflation and wage data before November’s meeting, so there’s not a huge amount for the Bank to go on,” says James Smith, developed markets economist at financial services group ING. “If there’s enough in the recent data to convince the Bank to pause this month, then we suspect the same will be true in November. Certainly, it looks like wage growth is at a peak, even if the downtrend is likely to be gradual. And services inflation should trend downwards over the coming months now that gas prices are so much lower.”

Looking further ahead, the Bank reiterated the stance it shared in August that the base rate would need to remain “sufficiently restrictive for sufficiently long” if inflation was to return to its 2% target. Without some sharp decreases in inflation in the coming months, it suggests that a reduction in the base rate is unlikely soon. 

“The recent inflation news is positive and probably influenced the base rate hold,” says Robert Payne, director of mortgage broker Langley House Mortgages. “But there is still work to do before we see positive movements on the base rate and I don’t think we will see reductions until next year.” 

Fixed mortgage rates continue to drop

The good news for some borrowers is that the rates of fixed-rate mortgages continued to fall in September. According to Rightmove, rates have now been dropping for more than two months, with reductions seen across two- and five-year fixed-rate mortgages of every loan-to-value (LTV) it checks. 

Some of the largest falls in that time have been recorded at 60% LTV – for those with a 40% deposit or equity – with the average five-year rate dropping to 5.26% as at 19 September, down from a recent high of 5.90% towards the end of July. 

Potential for rates to fall further

Following the surprise drop in inflation, a case can also be made for fixed rates to carry on falling. Lenders consider several factors when setting fixed rates, including expectations about the base rate and its predicted level at certain points in time. And in the weeks leading up to the September announcement, lenders generally would have been expecting the rate to rise, and priced this into their mortgage rates accordingly. 

Given that the increase did not happen, those margins that have already been ‘priced in’ may give lenders the leeway to lower their fixed rates further. Competition among lenders to attract the attention of borrowers has also heightened in recent weeks, and any new capacity that lenders have to lower rates can create the opportunity for this to intensify. Some lenders moved to swiftly cut their mortgage rates off the back of the news that inflation had fallen. More followed once it was confirmed the base rate of interest had been left unchanged. 

How far, and fast, rates may fall is likely to be the question most borrowers would like answered. For now, Payne suggests that slow and steady may be the best that can be hoped for. 

“Interest rates on fixed rate deals have gradually been decreasing in recent weeks and I predict this will be the same going forwards into the back end of the year,” he says. “The base rate was held for the first time after 14 consecutive rises which indicates we are either at the peak or very close to the peak. However, this doesn’t mean we are going to see any sharp declines and I suspect it will be some time before we see rates settle to a new normal.”

Image source: Getty Images

About the Author

Tim Leonard

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

Read More
Dive even deeper
Scope For Mortgage Rate Cuts Despite Warning They May Slow

Scope For Mortgage Rate Cuts Despite Warning They May Slow

There may be room for mortgage rates to carry on falling but there are suggestions the OBR inflation forecast could see the pace of cuts slow. Here are our latest mortgage rate predictions.

First-time Buyer Mortgages

First-time Buyer Mortgages

Getting a mortgage as a first-time buyer is likely to be more straightforward if you’re well prepared. Find out about first-time buyer mortgages, and how to find the best deal when buying your first home.

Mortgage Rate Cuts May Stall After Inflation Holds Firm

Mortgage Rate Cuts May Stall After Inflation Holds Firm

The base rate could remain unchanged for a while and slow down mortgage rate cuts after the latest official data revealed inflation is unexpectedly ‘sticky’. Here are our latest mortgage rate predictions.

Back To Top