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Published 27 March 2024
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Mortgage Rates Predicted to Fall After Inflation Drop

The base rate is forecasted to fall in the summer and there are hopes that mortgage rate cuts may be about to resume. Here are our latest mortgage rate predictions.

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UK mortgage rate forecast for April 2024

Experts are predicting that mortgage rates may start falling again following a larger-than-expected drop in inflation. The latest official data from the Office for National Statistics showed Consumer Prices Index (CPI) inflation fell to 3.4% in February, down from 4% a month earlier, and lower than the 3.5% that economists predicted. 

As a result, the financial markets and some commentators predict that the base rate will be cut in June. Failing that, many think that the current rate of 5.25% could be lowered at the following rate-setting meeting, in August. 

Either way, some lenders seem satisfied that a base rate cut is not too far away. On the same day the inflation figures were confirmed, one major lender, NatWest, announced that it would lower certain mortgage rates. Some mortgage brokers think that others will follow suit. 

“We have already seen some cuts,” Justin Moy, managing director of independent broker EHF Mortgages, told NerdWallet in an email. “Interestingly, buy-to-let rates have moved first, [and we’re] hoping that residential deals move before Easter. At the most important home-buying period, we have just seen a small green shoot of positivity that might just rescue the housing market this year. The sooner we move back to January’s rates, the better we will all feel.”

Fixed mortgage rates continued to rise

The resumption of rate reductions will come as a relief to prospective mortgage borrowers following six weeks when rate increases have been the norm. Since dropping to a recent low of 4.97% on 7 February, the average rate on two-year fixed-rate mortgages has climbed week-on-week to stand at 5.23% on 20 March. Rightmove data also shows the average rate on five-year fixed-rate mortgages has increased from 4.64% to 4.85% over the same timeframe. Our previous forecast had suggested more mortgage rate rises were likely in March

Despite the recent increases, the sizeable reductions made during the lender rate war in January mean typical rates for most borrowers are still lower than they were at the beginning of 2024. For comparison, the average two-year rate stood at 5.43% on 3 January, while the average five-year rate was at 5.02%. 

However, there is an exception. The one group for whom rates are currently higher compared with the start of the year are those who have a 5% deposit and are borrowing at 95% loan to value – typically first-time buyers. Here, the average rates on two-year fixed-rate mortgages have increased to 5.91%, up from 5.81% at the beginning of January, while equivalent five-year rates have risen to 5.48%, from 5.40%. 

Base rate cut could be nearing 

The latest inflation data had been revealed the day before the Bank of England made its latest base rate announcement on 21 March. As was widely expected, the rate remained unchanged at 5.25% for the fifth meeting in a row. It also means the base rate has remained at its 16-year high since last August. 

However, there was a change in the voting pattern of the committee members who decide rates – for the first time since September 2021, no one voted for the rate to increase.

This should not be seen as a definite sign that rates are imminently about to fall. Indeed, only one member voted for a cut, while eight voted for no change. The next rate-setting meeting is on 9 May, perhaps not allowing enough time for enough members to be convinced that a rate reduction is warranted. 

However, it isn’t difficult to find commentators who believe that the groundwork is being laid for rates to be cut on 20 June, or maybe at the following meeting on 1 August. 

In particular, some have noted a remark in the minutes of the rate-setting meeting stating that the committee recognises that “the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced”. In other words, the bank feels there could be room for a rate cut, and for rates to remain sufficiently high to carry on pushing inflation down at the same time.  

“We’ve held rates again at 5.25% because we need to be sure that inflation will fall back to our 2% target and stay there,” Andrew Bailey, governor of the Bank of England, said in a statement shortly after the announcement. “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction.”

Lower mortgage rates predicted

For borrowers considering taking out a fixed-rate mortgage, the hope must be that such sentiment provides lenders with the reassurance they need to start lowering rates again. 

For those with a tracker mortgage, or paying a standard variable rate, it seems the long wait for their rates to start to fall could soon be over. The question now is how far they may drop, and how fast. Some commentators believe that once the first base rate cut arrives, several more could quickly follow. Currently, Moy thinks it’s possible the base rate could end the year at 4.50%. 

“We should start to see rate reductions for both fixed deals and those linked to base rate over the next few months, given the positive words from Andrew Bailey framing the last [Monetary Policy Committee] announcement,” Moy said. “With inflation moving quickly to the 2% target, there is every indication the base rate will fall by up to 0.75 percentage points this year.”

Image source: Getty Images

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