Many industry experts are now predicting Bank of England’s base rate will drop in the upcoming months which could offer some relief to those who monthly mortgage payments have risen alongside it
Certain mortgage holders could see monthly savings worth £300 when the base rate finally falls this year.
The Bank of England started increasing its base interest rate in December 2021 and after 14 consecutive rises, the rate now stands at 5.25%. Over the last few years, those on variable mortgages – so those with a tracker or standard variable rate (SVR) deals – have seen their monthly payments rise alongside the base rate. Currently, around 1.5million people have a variable rate mortgage.
Those who have a tracker mortgage see their monthly payments go up and down with the base rate. This means they get more expensive when the base rate rises and become cheaper when it drops. Those on trackers have seen their monthly payments rise 14 times over the last few years. If you have a SVR deal then it is normally down to your lender to pass on any rises – which many did.
However, many industry experts are now predicting the base rate will drop in the upcoming months which could offer some relief to those who have been impacted by the hikes. If predictions are correct, then those on tracker mortgages could potentially see monthly savings of around £300 by the end of the year.
According to experts, the first base rate cut of 0.25 percentage points is expected in June this year. Paul Dales, chief UK economist at Capital Economics, said the base rate will most likely stand at 4% by the end of this year, before dropping to 3% in 2025.
The last time the bank rate was 4%, the average two-year tracker deal was 4.48% according to the financial data company moneyfactscompare.co.uk. A mortgage holder with £300,000 left on their 25-year home loan, will currently be paying £1,959 a month based on the average tracker rate of 6.14%. If the rate falls to 4.48% by the end of the year, homeowners could see their monthly payments drop by £295 to £1,664.
Mr Dales continued: “When the bank rate drops, those on variable deals will get the benefit before anyone else, which will be very welcome as they’d have been feeling pain even more so than others. It’s always a bit of a gamble taking one on, but I’d have thought the share of trackers would definitely go up as the Bank Rate comes down. It’s pretty clear interest rates won’t be going up further so anyone who is feeling brave might go for one.”
