Mortgage Rates Forecast for 2024 – Forbes Advisor UK

The Bank of England Bank Rate has been frozen for the past four months, after rising to a 15-year high of 5.25% in August. It has led the financial markets and consumers to hope interest rates may have peaked, at least for now. 

The Bank of England’s Monetary Policy Committee (MPC), the part of the Bank which decides interest rates, kept the Bank Rate at 5.25% when it met on 14 December. But what will happen to Bank Rate and, crucially for millions of borrowers, mortgage rates in 2024?

The Bank Rate is a major influence on the cost of mortgages so the recent hold on rates has come as welcome relief to homebuyers and those coming to the end of fixed rate home loans and looking for a new mortgage deal.

But while this trend bodes well for borrowers under payment pressure and for the sagging housing market, mortgage rates remain high (borrowing rates were last at this level more than a decade ago). Higher mortgage rates continue to create challenging conditions for buyers, hampering mortgage application activity and transactions in the housing market.

Bank holds interest rates: What this means for mortgages

In a widely expected move, the Bank of England voted to leave its benchmark interest rate, known as the Bank Rate, unchanged at 5.25% in December 2023.

It was the third consecutive meeting and interest rate decision where the MPC did not vote to increase rates. The last increase to Bank Rate was a 25 percentage point hike which came in August. It took the rate from 5% to 5.25%.

The Bank Rate, and consequently mortgage rates, have skyrocketed over the past two years, to reach their highest levels in decades. This has come due to the Bank of England’s aggressive action to tame inflation. In December 2021, Bank Rate was at just 0.1%, but following 14 consecutive rate increases it stood at 5.25% by August this year.

Although the latest inflation figure (for October) fell to 4.6%, down from 6.7% in September, the Bank of England has a long-term target of 2%. It means UK borrowers may not yet be out of the woods on interest rate rises. Three of the nine members of the MPC voted to increase Bank Rate at the meeting on 14 December, though the remaining six voted to hold at 5.25%.

For now, mortgage rates remain at a much higher level than they have been in recent history. It means many more borrowers are set for a big payment shock when they come to remortgage in 2024.

In its recent Financial Stability Report, published on 6 December, the Bank of England said around 900,000 borrowers are set to see their monthly mortgage repayments jump by more than £500 next year, when they come off much lower fixed rate deals. Around 20% of these homeowners could see a monthly increase of more than £1,000.

Mortgage rate predictions 2024

The Bank of England governor Andrew Bailey has said he expects Bank Rate will remain at its current level of 5.25% for some time, with no cuts for the ‘foreseeable future’, as inflation still has further to fall. It therefore seems unlikely that there will be any downward movement when the next Bank Rate decision is announced on 1 February 2024.

The US-owned credit rating agency S&P Global Ratings has also forecast that the Bank of England will not begin cutting interest rates until the second half of next year. This means mortgage rates are not likely to fall significantly before then. 

The overall message on interest rates seems to be ‘higher for longer’, meaning it is highly likely mortgage rates will also stick at or around current levels for many months.

Here is a round-up of what the mortgage lending industry, economists, and mortgage and property experts have said about the outlook for mortgage rates in 2024:

UK Finance

In its latest housing and mortgage market forecasts for 2024 and 2025, UK Finance, the trade body which represents the banks, says: “The outlook is one of continuing challenges in the mortgage market; however, the main pressures on affordability look to be peaking now. 

“While it will take some time for the pressure on household finances to recede, we expect things to begin to look up in 2025.

Capital Economics

Chief UK economist at Capital Economics Paul Dales, says: “We now think the recession will be shallower and growth will stay weak throughout 2024. It’s a softer landing for the economy, but the runway is longer. 

“We believe the Bank of England won’t cut interest rates from 5.25% until late in 2024. But a stagnant economy will lay the groundwork for a more marked easing in price pressures in 2025 and more significant interest rate cuts. Our forecast that rates will be cut to 3% in 2025 is lower than the cuts to 4% priced into the markets.”

Nationwide

Robert Gardner, Nationwide’s chief economist, says: “There has been a significant change in market expectations for the future path of Bank Rate in recent months. By the end of November, the view was that rates have now peaked and that they will be lowered to around 3.5% in the years ahead. 

“While markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high. Policymakers have cautioned that it is too early to be talking about interest rate cuts.”

Lloyds Banking Group,

Lloyds Bank, which also owns Halifax, predicted in its interim results (third quarter of 2023), that the Bank Rate will remain at 5.25% during 2024, dropping down modestly to 5% by the fourth quarter of the year.

Rightmove

The online property portal has predicted that mortgage rates will settle in 2024 but ‘remain elevated’, tempering some buyers’ budgets, especially in the lower and middle market sectors.

Better.co.uk

Amanda Aumonier, director of sales & operations at mortgage broker Better.co.uk, says: “In 2024 we expect mortgage rates to slowly decline and the Bank of England may look to reduce the Bank Rate towards the end of the year. If that happens, expect to see fixed rates slightly fall before then to reflect market trends. 

“This could bring borrowers more certainty and make it easier to budget.”

London & Country Mortgages

David Hollingworth, associate director, says: “Many experts are anticipating Bank Rate will hold firm until later in 2024 and the Bank of England has consistently stated that it will do whatever is required to bring inflation back down to its target, which is still considerably lower than where things stand today. 

“Mortgage rates, on the other hand, are already on the move and fixed rates have been falling after the rapid spike in the summer. Many of the lowest five-year fixed rates are now well below 4.50% and two-year below 5%. 

“Both are still being nibbled away so we could see more nudging toward 4.25% and 4.75% respectively as we head into the New Year.”

Is 2024 a good time to remortgage?

Whether or not 2024 will be a good time to remortgage will depend on a range of factors, including the financial circumstances of the individual borrower. 

Figures from the regulator the Financial Conduct Authority show that around 1.5 million homeowners will come to the end of fixed rate mortgage deals in 2024. And the Bank of England has estimated around five million homeowners will see their monthly mortgage payments rise between now and 2026.

Most borrowers will see a significant spike in their monthly mortgage costs as rates have climbed significantly over the past two years.

But the positive signs are that with the Bank of England holding interest rates in December the mortgage market could now start to stabilise. It means borrowers who need to remortgage at the start of next year should find better deals and rates available compared to six months ago for example, when inflation and the Bank Rate were both still rising and the outlook was uncertain.

Borrowers could benefit from any mortgage price wars that might emerge early in 2024 as lenders vie for business. This was seen in the later months of 2023 when lenders started offering fixed rates at under 5% and then closer to 4.5% as a way of attracting new customers.

Nick Mendes, mortgage technical manager at broker John Charcol, says: “Lenders will be motivated to attract new business in the New Year, given the level of transactions and applications were down in 2023 compared to previous years. As such, lenders will be looking to remortgage rates aggressively to build their mortgage book. We could also see more lenders release sub-4.5% five-year fixed rates, with two- and three-year fixed rates at around 4.8%”.

Although there is likely to be significant rate shock for borrowers coming off super low fixed rates in 2024, remortgaging to a new deal will usually be cheaper than being automatically moved on to a lender’s standard variable rate (SVR). The average SVR is at 8.19%, according to Moneyfacts. 

Current mortgage rate trends

The cost of fixed rates, variable rates and tracker rate mortgages have come down in recent weeks as lenders are starting to feel more confident that interest rates have peaked.

The number of deals available has also increased. As of 11 December, there were 5,766 residential mortgage deals on the market, according to data provider, Moneyfacts. This is up from the 5,678 available on 1 November, a further sign of greater market stability. 

Moneyfacts data now shows the average two-year fixed residential mortgage rate stands at 5.99%. The average five-year fixed residential mortgage rate is 5.60% (11 December). 

But the best mortgage rates, for borrowers with the largest cash deposit or equity in their property (at least 40%), as well as an excellent credit score, are now hovering between around 4.5% to about 4.8% for a five-year fixed rate, while the best two year fixed rate deals are at just under 5%.

Current mortgage rates for December 2023

The following table shows the average rate of a mortgage over two-year, three-year and five-year time frames, which are the most popular mortgage types. We’ve also shown the average monthly cost, based on a £200,000 repayment mortgage over 25 years. The table shows that currently five-year fixed rates are, on average, cheaper than two- and three- year fixed rates. 

Average fixed mortgage rates and monthly costs

What do current mortgage rates mean for remortgaging in 2024?

Rising mortgage rates during 2023 appear to have led more borrowers to refinance with their existing lender, rather than remortgage to a deal with a different bank or building society.

Most lenders offer product transfer or switcher rates to their existing customers when they come to the end of a mortgage deal. Often these might be at preferential rates or with low or no fees, as an incentive. 

Plus, crucially, at a time of rising mortgage costs and general cost of living pressures, the borrower does not need an affordability assessment for a product transfer. In contrast, affordability must be rigorously checked under mortgage regulations when moving to a deal with a new lender.

UK Finance data shows around 1.5 million borrowers came to the end of fixed rate deals during 2023. It says in the year to date there have been 1.3 million pound-for-pound refinances of these mortgages (so borrowers took a new mortgage deal but did not borrow any more) and of these nearly nine in ten of were internal product transfers with an existing lender. 

Product transfers increased by 11% to £219 billion in 2023, according to the trade body, whilst external remortgaging fell by 21% to £65 billion.

It suggests more borrowers have found it easier and more cost effective to take a product transfer deal.

While this trend is widely expected to continue into 2024 (around 1.5 million borrowers are due to come to the end of fixed rate deals next year), some experts are predicting there could be a gentle swing back to remortgaging, as keener rates start to lure borrowers.

UK Finance has predicted a marginal fall in both external remortgage activity and product transfers (a fall of around 8% for both categories) in its housing and mortgage market forecasts for 2024, due to there having been a peak in maturing two-year fixed rate deals in 2023.

Riz Malik, founder of broker R3 Mortgages, says: “I’m optimistic for those seeking to remortgage. Recent months, particularly the last few weeks, have demonstrated lenders’ willingness to implement substantial rate reductions. 

“More lenders are likely to prioritise market share over profit margins, especially during the first quarter of 2024 and borrowers should benefit from that with lower rates on offer. This trend could shift the focus towards remortgaging, as opposed to product transfers, which were prevalent in 2023.”

How to get a lower mortgage rate

The good news is that despite higher mortgage rates there are things you can do to secure a competitive home loan deal. 

Action you can take includes:

• using a mortgage broker: Using a fee-free mortgage broker (such as our partner Better.co.uk) who can scour the market to find the most suitable deals for your needs 
• starting looking early: If your current mortgage deal is coming to an end in 2024 you can speak to a broker and start looking for a new deal up to six months ahead of the end of your existing deal. You could lock in a competitive fixed rate now, for example, but if rates did fall during that time you could still switch to the best rates at the time
• boosting your credit score: Take steps to strengthen your credit score
• saving: By accumulating a larger deposit towards a home purchase you may be able to get a lower mortgage rate
• considering different mortgage terms: A five-year fixed rate could have a lower interest rate than a two-year deal, for example. But look out for the arrangement fees as these can bump up the total cost of a deal
• speaking to your current lender. It is worth comparing product transfer deals (the rate and fees) with the prevailing deals in the open market to see if you might save money by sticking with your existing lender. 

What affects mortgage rates?

A complex set of factors impact mortgage rates, including broader economic conditions, the monetary actions of the Bank of England and inflation. Fixed mortgage rates are also directly impacted by swap rates. These are the interbank interest rates at which the banks lend to each other in the wholesale markets.

The rate you’re offered on a mortgage will also depend on the lender you opt to borrow from and your credit score and financial position. 

Demand for mortgages can also affect rates, pushing them higher as available capital for lending tightens. Conversely, when there’s less borrower demand, as we have seen in recent months due to high fixed rates, lenders will sometimes offer more competitive rates or other incentives to attract borrowers and increase business.

How to find the best mortgage rate

Getting a great mortgage rate can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:

• keep your eye on rates and act early. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate ahead of time. As mentioned above typically lenders will allow you to lock in a new mortgage deal up to six months before your existing rate comes to an end

• check your credit score. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness. In general, the higher your credit score the better your rate will be

• compare lenders. Consider options from as many lenders as possible and use a mortgage broker to find the best deal for you.

Mortgage rate predictions for the next five years

Predicting mortgage rates for the next five years is a tall order, especially considering the uncertainty seen over the past two years with record high inflation, stagnant growth in the economy and huge cost of living pressures for households

As far as which direction interest rates will go in the years ahead, most experts concur there will be a gradual fall. However, the timeline for this downward trend remains uncertain.

John Charcol’s Mendes says: “While no one can confidently preempt market conditions in a year, two years or even five-years’ time, markets are forecasting future Bank Rate reductions. It means mortgage holders are likely to become more accustomed to seeing fixed rates starting at sub-4% in the long term, which would be welcome.”