Many people across the UK are asking when will mortgage rates will drop?
For those who already own a property, the prospect of remortgaging may seem daunting since rates increased in 2023.
Those looking to move to a new property may also be waiting for mortgage rates to drop to make their next purchase just that bit more affordable.
When will mortgage rates drop?
The good news is that they are starting to drop already.
It was reported this week that rates dropped below 4% at Nationwide, the UK’s largest building society. The rate is 3.84% at the time of writing.
This is the cheapest deal provided by the company for 8 months and is also significantly under the Bank of England’s base interest rate.
This is only available currently to those who are remortgaging although it’s still not bad news for first time buyers; the rate offered to those looking to take a first step onto the property ladder is only 0.01% higher at 3.85%.
Both these products are 5 year fixed rate deals and are significantly lower than the average offered by other lenders which stood at 5.2% this week.
Will other mortgage lenders follow suit?
Although some lenders are following the trend of sub 4% products, some are actually increasing.
Santander recently increased their rates on some mortgage products by 0.2% for remortgages.
This though is still well below the average last summer when rates stood at around 6%.
Should you wait for rates to drop further?
Unfortunately, we don’t have a crystal ball which will tell us the future relating to mortgage rates.
As we’ve seen this week, rates can go up and down and fluctuate daily.
For now, we feel that rates are likely to stick at around this mark for the next few months.
The best advice we can give at Benwell Daykin is always talk to our qualified mortgage broker who will be able to advise you in more detail.
Products can vary depending on your own circumstances too, so it’s always a good idea to compare the whole of the market with a broker and find out which products match your criteria.
For some, this will now be the best time to buy a new property as rates are now becoming more affordable.
2023 saw a huge hike in mortgage rates, largely due to the Bank of England increasing the base interest rate to 5.25%.
According to Zoopla, fixed mortgage rates peaked at 6.44% which was a stark contrast to the historic lows.
But will mortgage rates continue to rise in 2024 or will they begin to drop?
The good news is that mortgage rates are already starting to come down. News reports in early January 2024 suggest that mortgage lenders are already cutting rates.
One of the biggest UK lenders, Halifax, has cut their mortgage interest rates by close to one percentage point and mortgage brokers are expecting other lenders to now follow suit.
It is important to note however that not all mortgage products will be reduced, so it’s wise to speak to a mortgage broker to understand which ones have now become more affordable for you.
How mortgage rates are dropping at the start of 2024
Towards the end of 2023, you’d be lucky to get a mortgage rate below 5%. Since January 2024, 5 year fixed rate deals are now being offered at below 4%. However, this rate is only available currently for a remortgage with a 60% loan-to-value.
Media outlets are reporting that a 2 year fixed deal should soon fall below 4.5%.
As we continue to move through the year, Benwell Daykin expect these below 5% rates will move to other mortgage products too, as well as other lenders.
When rates decrease, buyers tend to have better affordability. This means they can look to make offers on properties which they previously may not have been able to afford.
As such, we expect house prices to remain at their current levels, if not increase slightly.
Houses should begin to sell faster too, as increased affordability means more people will be looking to purchase property.
Key things to remember as mortgage rates drop
Remember to always speak to a mortgage broker before making a decision on which mortgage product to go for. Benwell Daykin offers free initial mortgage advice which can help you to decide which product is best for you based on your own circumstances.
Fixed rates are a great way to lock in lower interest rates but be aware these rates could go down further. If you lock in for a long period of time then you will be missing out on these further drops. Of course, rates could rise too which would obviously act in your favour!
Remember also to look out for fees. Some lenders offer lower rates but include a fee when signing up for the mortgage.
On Thursday 3rd August 2023, the Bank of England raised interest rates by another quarter of a percent. This has now taken the base rate to 5.25 per cent and is the 14th consecutive hike. This is also the highest interest rate since March 2008, the year of the financial crisis.
So what does this mean for you?
Why are interest rate rises happening?
By rising interest rates, the Bank of England is hoping to bring down inflation. Inflation is very high right now which is contributing to our cost of living crisis. By increasing interest rates, the BoE are hoping that many will stop spending and save money instead. This, in turn, should hopefully lower the price of goods.
What will happen to mortgage payments?
The interest rate increase can be a troubling time for some. For instance, there are over 1.4 million people in the UK who are on a variable rate residential mortgage. This means that their payments fluctuate along with interest rates.
Some home owners could now see hundreds of pounds added to their monthly payments which, during a cost of living crisis, is definitely not ideal.
What can you do to ease any pressure?
There are several things you can do to ease pressure if your mortgage bills are rising. The first is talk to a qualified mortgage broker. Whilst this blog can offer guidance, every financial situation is different. You can talk to a qualified broker for free by calling our offices on 0115 990 2007.
You can also talk to your lender. Some are now offering a switch to interest-only products. This means you only pay the interest on your mortgage every month, rather than the full payment. Whilst this does lower your monthly costs, be aware that you won’t be making payments towards your home, only to the lender’s fees. This will likely extend the term of your mortgage.
Moving to a fixed-rate mortgage could also help. If you are on a variable rate where your payments fluctuate, you may be financially better off by fixing in the rate for 2, 5 or 10 years. Again, talk to a qualified mortgage broker to see which option is best for you.
The good news
It’s not all doom and gloom, however. Santander, for example, actually cut their mortgage rates ahead of the base rate rise. So there are deals still to be had if you talk to a qualified mortgage broker.
It may also be easier for you to purchase a property right now. House prices have dipped slightly which means you may be able to afford that property of your dreams.
May 2023 marked a significant turning point for the United Kingdom’s financial landscape, as the Bank of England implemented an interest rate rise for the first time in several years. This move reflects the evolving economic conditions and aims to balance the needs of consumers, businesses, and the overall stability of the economy. In this blog post, we will explore the implications of interest rate rises in the UK in May 2023 and discuss how individuals and businesses can navigate these changes.
The rationale behind the interest rate rise:
The Bank of England’s decision to raise interest rates in May 2023 was driven by several factors. One of the primary reasons was the need to curb inflationary pressures, which had been gradually building up due to increased consumer spending, rising energy costs, and supply chain disruptions. By raising interest rates, the central bank aimed to reduce the pace of spending, cooling down the economy and reining in inflation.
Impact on consumers:
For consumers, the interest rate rise means an increase in borrowing costs. Mortgages, personal loans, and credit card debts are directly influenced by interest rates. As rates rise, monthly payments on variable rate mortgages are likely to increase, potentially impacting household budgets. Individuals should review their finances, consider fixed-rate mortgage options, and explore opportunities for debt consolidation or refinancing to mitigate the impact of rising interest rates.
Impact on businesses:
Businesses will also feel the effects of interest rate rises. The cost of borrowing will increase, which may deter investment and expansion plans. Higher interest rates can also affect consumer spending habits, potentially impacting the sales and profitability of businesses, particularly those in sectors sensitive to interest rate changes. Companies should assess their cash flow, review their financing strategies, and explore alternative sources of funding to adapt to the new interest rate environment.
Investing wisely:
As interest rates rise, savers may benefit from higher returns on their deposits. Traditional savings accounts and fixed-term deposits may become more attractive as they offer better interest rates. However, investors should also diversify their portfolios and consider other investment options, such as stocks, bonds, or real estate, which can provide opportunities for growth and offset the impact of rising interest rates.
Overall economic outlook:
While interest rate rises can cause short-term adjustments and challenges, they are often seen as a positive sign for the economy. Higher interest rates can help maintain price stability, encourage savings, and prevent the buildup of excessive debt. However, it is important to strike a delicate balance to avoid stifling economic growth. The Bank of England will closely monitor economic indicators to assess the impact of interest rate rises and adjust policies accordingly.
The interest rate rise implemented by the Bank of England in May 2023 signifies a shift in the UK’s economic landscape. Consumers, businesses, and investors need to adapt to this changing environment by carefully reviewing their financial strategies, considering alternative financing options, and exploring diversified investment portfolios. While initial adjustments may be challenging, the long-term benefits of a stable and balanced economy can outweigh the short-term impacts. By staying informed and proactive, individuals and businesses can navigate these interest rate rises and position themselves for financial success in the evolving economic climate.
How Interest Rates Impact Mortgages
In addition to the broader implications of interest rate rises in May 2023, it is essential to understand how these changes will specifically impact mortgage rates in the UK. Mortgage rates are directly influenced by the Bank of England‘s base rate, which serves as a benchmark for lending institutions. As Estate Agents in Nottingham, Benwell Daykin breaks this information down.
Variable rate mortgages:
For homeowners with variable rate mortgages, the interest rate rise will lead to an increase in their monthly mortgage payments. Variable rate mortgages are typically linked to the base rate, meaning that any increase in the base rate will result in higher mortgage rates. Borrowers should be prepared for potential adjustments in their budget and consider the impact on their monthly mortgage affordability.
Fixed rate mortgages:
Homeowners with fixed rate mortgages will generally not be immediately affected by the interest rate rise. Fixed rate mortgages offer a predetermined interest rate for a specific period, usually two to five years. However, as fixed-rate mortgage deals expire, borrowers will need to renew their mortgage or switch to a new lender. When doing so, they will likely face higher interest rates than those available during previous years. It is important for homeowners to review their options and assess whether it is advantageous to lock in a new fixed-rate deal or explore other mortgage products.
Remortgaging and new home buyers:
The interest rate rise may lead to increased remortgaging activity as homeowners seek to secure lower rates or more favourable terms before rates rise further. This surge in demand for remortgaging could potentially lead to increased competition among lenders, offering borrowers a range of mortgage deals to choose from. However, borrowers should carefully consider the associated costs, such as arrangement fees and early repayment charges, to determine if remortgaging is financially beneficial.
When buying property, new home buyers entering the market after May 2023 may encounter higher mortgage rates compared to previous years. It is crucial for prospective buyers to factor in these increased rates when calculating their affordability and budgeting for homeownership.
Expert advice and planning:
Given the complexities and potential financial impact of interest rate rises on mortgage rates, seeking expert advice is strongly recommended. Mortgage brokers or financial advisors can provide guidance on navigating the changing landscape, exploring different mortgage options, and identifying the most suitable approach based on individual circumstances.
You can talk to our recommended mortgage broker for free by calling us on 0115 990 2007.
The Bank of England has today announced that interest rates will be cut from 0.75 per cent to 0.25 per cent. This has been introduced as an emergency measure to keep the economy moving, following the outbreak of coronavirus.
This news means that borrowing costs are down to the lowest level in history.
History of interest rates
Interest rates were increased in August 2018 from 0.5 per cent to 0.75 per cent. This announcement is the first cut since August 2016.
From 2008 to 2016, interest rates were at a steady 0.5 per cent.
Mortgage rates
Mortgage rates are likely to change slightly although this will not be immediate.
If you are on a Variable Rate mortgage then you may soon see a reduction in your monthly mortgage payments. If you are looking for a new mortgage deal then you may have to wait some time for these changes to happen.
It is unlikely that there will be significant drops in monthly mortgage payments as interest rates were already at a very low level.
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