When will mortgage rates go down? How the next Bank of England interest rate decision will affect mortgages
Interest rates are expected to rise again this month, marking the 13th successive increase.
The Bank of England will reveal the next base rate decision on 22 June, and is widely expected to lift it by 0.25 percentage points, to 4.5 per cent – the highest it has been since 2008.
This will lead to yet another increase to mortgage rates, piling further pressure on homeowners who have already seen a dramatic rise to their bills in recent times.
How will rising interest rates affect mortgages?
If interest rates rise as expected on 22 June, then mortgage rates in turn will rise for millions of people in the UK.
They have already risen this month off the back of higher than expected inflation, of 8.7 per cent, being announced.
The average two-year fix is now 5.79 per cent, compared to 3.05 per cent a year ago, according to data from Moneyfacts, and the average five-year fix is 5.47 per cent, up from 3.2 per cent in June 2022.
Those on variable rates have seen consecutive price increases in line with the base rate, with the average one now reaching 7.52 per cent, according to Moneyfacts.
Meanwhile, those coming off fixed-rate mortgages, of which there are predicted to be 1.4 million people this year, will also face much higher monthly bills after some will lave behind rates as low as 0.99 per cent.
HSBC temporarily withdrew mortgage deals for new borrowers on Thursday “to ensure that we can stay within our operational capacity and meet our customer service commitments”.
It will make these deals available again on Monday, likely with increased rates.
Nationwide also said it would raise some of its fixed mortgage rates for new borrowers from Friday to ensure they “remain sustainable”.
Mohamed El-Erian, former deputy director of the International Monetary Fund (IMF), told BBC Radio 4’s Today programme: “People expect that the cost of mortgages will go up and you will accelerate your demand for getting that mortgage. Why pay more tomorrow when you can pay less today?
“If you’re HSBC, you see lots of people turn up wanting mortgages and you worry about two things. One is: will I make money on those mortgages? Two is: can I operationally handle these?”
When will mortgage rates go down?
Interest rates are expected to increase to as much as 5.25 per cent by the end of this year, and could even go higher.
Laura Suter, head of personal finance at AJ Bell, said after May’s inflation announcement: “Following this week’s news that inflation once again isn’t falling as fast as expected, markets are now pricing in another three or four interest rate hikes, up to a peak of 5.5 per cent.”
Most economists believe interest rates will only start falling in February or March of 2024.
It is predicted they will fall to around 3.5 per cent by 2025, according to the Bank of England forecasts.
However, this will depend on inflation. The Bank of England’s target of 2 per cent has not been reached since June 2021 and while it is now out of double digits, it is still only predicted to fall to 5 per cent by the end of this year before reaching the 2 per cent target in late 2024.
