Will mortgage rates go down in 2024?

Mortgage rates have dipped significantly following their peak during the summer, with the Bank of England keeping the base interest rate level since August. But the impact of high mortgage rates are still being felt, with house prices taking a hit. We explore where rates might head next.

While cheaper mortgages and falling house prices are good news for first-time buyers, rates are still historically high – and property prices, too. This means buyer demand for homes and agreed sales still have some way to go before they recover to where they were a year ago.

The Bank of England hiked the base interest rate fourteen times in a row to curb soaring inflation. This caused mortgage rates to jump significantly, though they’ve fallen slightly in recent months. The average two-year fixed rate is currently 6.02%. This marks a steep increase from December 2021, when this figure was 2.34%.

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Read more: Can’t pay your mortgage? Here’s what you can do

Why are mortgage rates going down?

Mortgage rates rose sharply during 2022 and the first half of 2023, in response to the Bank of England hiking the base rate of interest from 0.1% to 5.25% in a bid to tackle soaring inflation. You can find out more about how interest rates affect inflation.

However, inflation has been falling in the UK, which is giving banks and building societies more confidence to lend money to borrowers at a cheaper price.

Lenders pre-empt base rate moves by the Bank of England by increasing or decreasing the price of their mortgage products accordingly.

With the Bank of England deciding to hold the base interest rate at 5.25% for the second time running in November, it’s likely that mortgage lenders had priced in the possibility of this decision.

Banks are also aware of that the housing market is slowing down, the number of people struggling to meet their repayments is rising and that very high rates are putting borrowers off.

While house prices are falling, the average home is still £40,000 above pre-pandemic levels. To attract customers, mortgage rates will need to fall.

A number of big names and smaller lenders have cut their rates, some more than once, since the beginning of August.

Read more: Five things to consider doing now if you’re fixed-rate mortgage is coming to an end

Will mortgage rates go down more?

While inflation has dropped during the past year, it remains too high for the Bank of England. The annual inflation rate stood at 4.6% in the year to October, more than twice the Bank’s 2% target. This means that the Bank of England may not start slashing interest rates just yet.

Nonetheless, experts generally believe that interest rates have peaked, after the Bank of England decided to pause its hikes in September and November. Find out more about when interest rates could go down.

Mortgage rates have already fallen since the summer. In July, the average two-year fixed rate climbed as high as 6.86%. Today, it’s 6.02%.

If inflation continues to fall, industry insiders are optimistic that average mortgage rates could fall below 5% again in 2024.

What are the latest UK mortgage rates?

On 6 December, the average mortgage rates according to Moneyfacts are:

• Two-year fixed deal now stands at 6.02%
• Five-year fixed deal now stands at 5.63%

On 1 December:

• Standard variable rate (SVR) is 8.19%

The last time the average two-year fixed rate was this much higher than the typical five-year rate was back in 2008.

We explore in more detail what’s behind the latest changes in mortgage rates.

Work out how much you can overpay on your mortgage with this free tool

How have UK mortgage rates changed?

Earlier this year, average mortgage rates jumped to their highest level since August 2008, during the financial crash. The average two-year fixed rate back then was 6.94%.

In the years that followed, the economy stabilised, and interest rates dropped like a stone. In December 2021, the average two-year fixed mortgage rate was 2.34%. Many deals were much cheaper than this. Some lenders were offering rates below 1% for those who had a large amount of equity in their homes or a sizeable deposit.

The current average five-year rate is now 5.77%, compared to 2.64% in December 2021.

However, after inflation soared and the Bank of England started raising interest rates, mortgage rates followed suit. Now that inflation has cooled somewhat, they have started to fall a bit.

You can see how mortgage rates have changed since June in the table below:

Looking for a mortgage? Use this free mortgage tool to see some of the best deals

Who can potentially get a cheap mortgage?

The cheapest deals tend to be targeted at existing homeowners looking to move or remortgage, and those with a lot of equity or a big deposit – usually around 40% of the property’s value.

An independent mortgage broker could help you find the cheapest deals on the market for your financial circumstances.

Here are other factors to consider:

• The bigger your deposit the lower your mortgage rate (generally)
• Five-year mortgage deals tend to have lower rates than shorter term deals
• Some deals are only available to borrowers in England and Wales
• Your credit score must be in top condition to secure a good deal

You might want to read: Is now a good time to remortgage?

What is likely to be the cheapest mortgage for first-time buyers? 

First-time buyers often have smaller deposits of between 5% and 10% of the value of the home.

A small deposit might mean you are more limited in the number of deals available to you. If you do find a suitable deal, the interest rates are likely to be higher than if you had a bigger deposit because lenders will see you as riskier.

We outline the pros and cons of small deposit mortgages.

You also need to consider any mortgage fees attached to the product. Some deals charge upfront fees or exit charges, while others don’t.

It is often the case that headline-grabbing low mortgage rates also come with the highest fees, which can make a big difference to the overall amount you pay for your home.

Be aware: it is not guaranteed you will qualify for an advertised mortgage deal. Lenders often have strict criteria for who is eligible.

To find the best mortgage deal for you, check out our mortgage comparison tool*. This gives the best options whether you are a first-time buyer, home mover, buy-to-let landlord or looking to remortgage.

If you are looking for help to get on the property ladder, check out our guide for first-time buyers.

Is it worth speaking to a mortgage broker?

It can be worth speaking to a mortgage broker as they will have access to a range of deals across the market.

Bear in mind that some banks reserve special deals for their existing customers, which may not be available to brokers. So you might want to speak to your bank or existing lender.

The good news is that you might be able to secure a cheaper mortgage once you have built up more equity in your home.

Looking for a broker? We list the best mortgage brokers

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