The past year has been quite the ride for both current and prospective homeowners, as mortgage rates saw some significant fluctuations following the mini-budget announcement at the end of September 2022.
In this article, we’ll explore the reasons behind the recent reduction in mortgage rates and take a peek into what 2024 might have in store for interest rates.
Why Have Fixed Mortgage Rates Fallen?
Fixed Mortgage rates have recently experienced a welcome descent, which has left many wondering about the reasons behind this shift. Let’s break it down:
- Positive Inflation Data: One key factor contributing to the decline in mortgage rates is positive inflation data. As inflation fears eased, it became increasingly likely that the Bank of England (BoE) would maintain its base interest rate, reassuring homeowners.
- Speculation of Interest Rate Cuts: Some experts have speculated that interest rates could potentially be cut starting from March 2024. This prospect is certainly heartening for homeowners who may see lower interest payments in the near future.
- Declining Swap Rates: Another factor affecting mortgage rates is the declining swap rates. These rates are derived from the market’s anticipation of future interest rates. As swap rates decrease, fixed-rate mortgage deals become more attractive to borrowers.
- Lender Incentives: The high mortgage rates experienced in 2023, led to a slowdown in the housing market. As a result, lenders have been motivated to reduce their rates to stimulate demand.
The Present and Future
Currently, the average two-year fixed mortgage rate for someone with a 40% deposit hovers around 4.8%. Some experts even predict that rates could potentially drop to approximately 4% by the end of 2023. This is encouraging news for those looking to secure a mortgage or refinance their existing one.
Fixed Mortgage Rate Predictions for 2024
Predicting mortgage rates for 2024 can be challenging due to the myriad of economical factors influencing them. These include inflation, interest rates, swap rates, and more. However, some insights can be gleaned from recent trends:
- Base Rate Cut: Many experts anticipate a base rate cut in the coming year. However, this prediction largely hinges on whether UK inflation continues to decrease as expected.
- Falling Inflation: In November, UK inflation dropped to 3.9%, its lowest point in over two years. It is projected to keep falling in 2024 and may even reach the Bank of England‘s 2% target earlier than anticipated.
- Berenberg’s Data: Private bank Berenberg’s data suggests that if inflation continues its downward trend, the Bank of England could initiate base rate cuts in 2024, possibly leading to rates as low as 4% by the year’s end.
What It Means for Homeowners
Fixed Mortgage rates are likely to continue their downward trajectory in response to these developments. If you currently hold a variable-rate mortgage, it might be wise to speak with a mortgage advisor and consider locking in a fixed-rate deal, ensuring more stable payments in the future.
Conclusion
In summary, the recent rollercoaster ride in mortgage rates seems to be settling down, with optimistic prospects for 2024. However, it’s essential to remember that forecasts can change due to various factors. While rates may be dropping, they will still remain comparatively high compared to historic lows. Homeowners should stay informed and consider their unique financial situations when making decisions about their mortgages.
If you need help with an Agreement in Principle or full mortgage application and protection products available, contact one of our friendly team who would be happy to have a chat and help guide you through it all.