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.
If inflation continues to fall as it did throughout 2023, industry insiders are optimistic that average mortgage rates could fall below 5% again in 2024. However, December's inflation figures have given some analysts cause for concern.
Following latest UK main economic indicators, the BoE sees an interest rate of 5.3% for the end of 2023. It expects a rate of 5.1% for 2024, one of 4.5% for 2025 and a rate of 4.2% for 2026.
How long are UK interest rates likely to stay high?
The latest Monetary Policy report says rates are expected to remain around 5.25% until autumn 2024 and then decline gradually to 4.25% by the end of 2026. The future of interest rates depends significantly on how quickly inflation drops – while wage growth and unemployment also play a factor.
Fixing your mortgage for longer can give you greater certainty as you'll know exactly what your mortgage repayments will be for the next 5 or 10 years. However, fixing for a longer term normally comes with higher interest rates - although rates for 5 year deals are lower than 2 year deals at the moment.
Some sources predicate that the base rate will increase to 6%, but it is expected that the new rate will be 5.1% for 2024, A new decision has to be announced on 14 Dec, currently, rates are the same. For 2025, the rates will go down to 4.5%, and in 2026, it is predicted to be 4.2%.
Is it better to get a 2 year or 5 year fixed mortgage?
However, most forecasts anticipate a decline in interest rates from around 5.25% now to 4% by the end of 2026. If this is reflected in future mortgage rates and you opt for a shorter deal now, then you will only be paying the higher rate for two years rather than five.
When will interest rates fall? Forecasts on when base rate will go down. The Bank of England will cut the base rate to around 3 per cent by late 2025, according to the latest forecasts from Capital Economics.
The Office for Budget Responsibility now expects Bank of England central interest rates to settle at 4pc by the end of its forecast period in 2028-29, rather than fall to 3pc as it had assumed in March.
"With these pressures unlikely to ease significantly in the short term, we expect lending to remain weak in 2024, with a gradual improvement in affordability reflected in a modest increase in activity levels in 2025. "The challenging environment has also pushed more households into mortgage arrears.
Fixing your mortgage for a set period means that you can ensure a large degree of financial stability. But going with a variable rate or tracker mortgage can mean your monthly outgoings may drop when interest rates come down. Read our guide to find out which is best for you.
It won't be until the end of 2025 that we'll see 6% mortgage rates, predicts Capital Economics, which had previously penciled in a 5% rate by the end of that year.
Right now, house prices haven't fallen as much as expected, while mortgage rates remain at 5% or higher, so housing still looks expensive by recent standards. Faster growth in household incomes over 2024 would improve buyers' affordability, along with mortgage rates falling over 2024.
What will UK Interest Rates be in 5 Years? The Bank of England predicts that UK interest rates will be 4.4% in quarter two of 2024. Rates are likely to decrease further to 3.8% in the second quarter of 2025 and reach 3.6% in 2026.
Mortgage rates are likely to go down in 2024. Rates have already been declining since the start of August - they are currently at 5.95% for an average 2 year fixed and 5.57% for an average 5 year fix, down from 6.85% and 6.37% respectively. This has been helped by inflation coming down over the last few months to 4.0%.
We increased interest rates to slow down inflation and rises in the cost of living. We need to keep interest rates high for long enough so prices continue to rise less quickly.
As a baseline scenario, the 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025.
Based on the latest market expectations for Bank Rate, we estimate that the average rate on a two-year fixed-rate mortgage is likely to reach 6.25 per cent this year based on current market pricing and won't fall back below 4.5 per cent until the end of 2027 (Figure 2).
If your current mortgage deal ends in the next six months you should start the remortgage process now. According to the Financial Conduct Authority you're not alone; 1.5 million homeowners are due to meet the end of their fixed mortgage deal in 2024.
Though mortgage rates are significantly higher in 2023 than they've been over the last 15 years, if you've been offered a 5-year fixed– rate mortgage deal and you're comfortable with the repayments, you can be comfortable in the knowledge that your monthly repayments are locked in at the same amount for the next 5 ...
The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts. It's worth noting that interest rates could decrease during your lock period. Should this happen, you'll most likely have to pay the rate you initially locked in.
The drop fuelled money market expectations that the Bank of England could cut interest rates as early as spring 2024, and already a five-year fixed-rate mortgage deal priced at below 4% is on sale for the first time since May.
If you are considering a five year fixed rate bond, then it pays to think carefully about the reality of whether or not you can afford to be without these funds for such a long period. Even if you are allowed to have early access – and most accounts will not – then you will likely face a significant loss of interest.
Those keen to have the security of knowing how much their mortgage will be each month may prefer to opt for a 5-year fixed-rate deal. A lot can happen in 5 years, however, so think carefully about your family setup and also how you would feel if interest rates are suddenly cut.
