UK mortgage predictions: where will rates go next? | The Week UK (2023)

UK mortgage predictions: where will rates go next? | The Week UK (1)

Average two-year fixed rates have nearly tripled since last year

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Mortgage rates soared in the final months of 2022, signalling an end of the era of cheap home loans.

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While prices have since dropped, many homeowners will face a “painful, though hopefully not ruinous, payment jump” when their existing fixed-rate deals expire this year, wrote John Stepek at Bloomberg’s Money Distilled.

High inflation was already pushing mortgage rates up “gradually” last year, said financial website This Is Money. But it was the unfunded tax cuts in the September mini-budget put forward by Liz Truss and Kwasi Kwarteng that really threw housing and financial markets into “disarray”, said The Guardian.

Rates skyrocketed from their “historic” lows of even less than 1% in the summer of 2021, said This Is Money, peaking at 6.65% in October. They have come down some but “still stand higher compared to a year ago”, said Moneyfacts.

All of this is making life more difficult for homeowners, and those hoping to get on the property ladder.

What determines mortgage rates?

Lenders consider a range of factors when setting their mortgage rates, including what competing lenders are offering and the cost of getting the money needed from the financial or wholesale markets to fund the loans.

(Video) Mortgage Rate Prediction 2023 - 2024. When Will Rates Go Down?

“The cheaper things are for the lender, the lower its rates can be,” explained Which?.

Another factor is the cost of borrowing, known as the interest rate, which is set by the Bank of England (BoE) base rate.

If the Bank’s interest rate rises, home loans will usually become more expensive as lenders “pass on the increase in the bank rate to their customers”, said MoneySuperMarket. So a higher base rate usually translates to higher monthly mortgage payments.

Are mortgages still getting more expensive?

Since Rishi Sunak became prime minister, the markets have calmed and lenders have started removing the so-called “Truss premium” from their mortgage products, said Reuters.

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Both the average two- and five-year fixed rates fell for the second month running at the start of January 2023, down to 5.79% and 5.63% respectively, said Moneyfacts.

But other pressures remain, said The Times, with BoE governor Andrew Bailey telling the newspaper that “interest rates would have to rise further” to combat inflation. The BoE’s Monetary Policy Committee raised rates from 3% to 3.5% in December.

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About three-quarters of UK homeowners are on fixed-rate deals, meaning their monthly payments remain the same for a set period of time. For these borrowers, the interest-rate changes “will have no effect on their mortgage rate in the short term”, according to banking trade body UK Finance.

But more than 1.4 million households in the UK are facing the prospect of “a significant increase in their monthly mortgage payments” when they have to refinance, Bloomberg’s Stepek said.

The majority of mortgages coming up for renewal in 2023 were fixed at interest rates below 2%, according to the Office for National Statistics (ONS). If someone with a £100,000 mortgage sees their rate jump from 2% to the “reasonably conservative” estimate of 4%, Stepek explained, “that would add £100 a month to your payments, a 25% increase”.

Average mortgage interest rates are expected to settle at between 4% and 5% this year, assuming “inflation has peaked and the Bank of England will slow its base rate rises as a result”, said This Is Money. Experts expect the BoE to ease up on the base rate in the second quarter of 2024, Bloomberg reported.

Lenders could lower rates even further if the base rate peaks at around 4.5% in early 2023, below the 6% initially projected in September 2022. But even so, rates are “likely to remain sticky”, said Bloomberg economist Niraj Shah. “We may have to get used to a ‘new normal’ as we are unlikely to see the ultra-low interest rates we had all got used to.”

Which mortgage should you choose?

There are two main mortgage products: fixed rates and trackers.

Fixed-rate borrowers pay a set amount each month for a defined period, which can make it easier to budget and means your payments remain steady even if interest rates rise,

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This may sound attractive when rates are low, but “think carefully before committing for too long as some fixed-rate mortgages may have an early repayment charge”, the financial website said. Plus, if interest rates go down during the fixed-rate period, your payments won’t, the website added.

A tracker mortgage usually follows the BoE’s base rate. Tracker rates are currently priced lower than fixed deals, but there is always the risk that rates will rise even higher, “leaving you gambling if you don’t fix, because then you will be at the mercy of a higher tracker, therefore higher mortgage repayments”, warned Online Mortgage Advisor.

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(Video) Fixed or Variable Mortgage - What Should I Get?

One way for borrowers to “try and ensure stability in their home finances” is to “think long-term when selecting their mortgage deals”, as the rates are usually lower than shorter fixes, said Unbiased.

Some buyers may be tempted to wait and see if mortgage rates drop further this year, but not everyone thinks that is a good idea. Borrowers who sit tight hoping for continued reductions will “need to think about how a rising base rate will affect their holding position”, David Hollingworth of L&C Mortgages told the i news site.

How to boost your chances of getting your mortgage approved

Lenders will typically use an income multiple of 4-4.5 times salary per person when assessing a mortgage application, sometimes rising to 5 or 5.5 times for higher earners, saidThe Times Money Mentor, but you will need to pass tough affordability tests.

This involves examining your income and outgoings. So “the more money you spend each month, the less you might be able to borrow”, the website said.

You can boost your chances of getting a mortgage by checking your credit report – a record of all your debts such as loans and credit cards and how good you are at making repayments.

These reports are compiled by providers such as Experian, Equifax and TransUnion and calculate a credit score based on the debts you have and your repayment history as well as whether you have ever been made bankrupt or received county court judgments.

The report gives a lender an idea of whether you are a responsible, reliable borrower and likely to repay the debt. “Usually, a higher score means you’re seen as lower risk,” said Experian.

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You can improve your creditworthiness by making payments on loans, credit cards and bills on time and by getting on the electoral register so lenders can verify who you are, said Equifax.

Be careful, though, as making lots of applications may suggest to lenders that you are reliant on credit, so if you plan on applying for a mortgage, “it might be helpful to be selective about what other loan applications you make”, Equifax added.

How to find support if you are struggling to pay your mortgage

Around 770,000 households are either at risk of a mortgage shortfall over the next two years or are already behind with payments due to being “sensitive to changes in interest rates”, City watchdog the Financial Conduct Authority (FCA) warned.

(Video) How interest rate hike will affect mortgages

UK Finance has said lenders are committed to helping customers who might be struggling with their mortgage payments, “with a range of tailored support available”.

The organisation said anyone who is concerned about their finances “should contact their lender as soon as possible to discuss the options available to help”, reported Yahoo Finance.

Support may include temporary payment arrangements, lengthening the term of your mortgage, or switching temporarily to interest-only repayments, said MoneyHelper.

You can also get free housing advice from Shelter and support on managing debts from charities such as National Debtline and StepChange, added MoneyHelper.

Benefit claimants, such as those on Universal Credit, may be able to get help with some of their monthly repayments through the government’s Support for Mortgage Interest (SMI) scheme.

Before making major mortgage changes, brokers suggest making personal spending cuts. “Many of us are more financially stable than we think we are when we look closely,” Carmen Green, mortgage and protection adviser at Xpressmortgages, told FTAdviser. “Changing to interest-only or taking payment holidays could just delay the problem for many, rather than solve it.”

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously worked for the FT’s Financial Adviser, the financial podcast In For a Penny and MoneyWeek.

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(Video) Housing Market About to UNRAVEL as Mortgage Rates Set to JUMP Even More as Banks DUMPING Mortgages


What is the next Bank of England interest rate prediction? ›

The current base rate is 4.5% as of 11 May 2023. 92% of experts (12 of 13) correctly predicted that the Bank of England would raise interest rates again by 0.25%. Three quarters (75%) believe a rate rise to 4.50% is the right decision.

What is the prediction for mortgage rates in 2023 UK? ›

The market is pricing in further interest rate hikes in 2023, predicting that the Bank of England base rate will rise to almost 5% by August 2023 before slowly falling over the next five years to end up around 3.4%.

Are mortgage interest rates likely to go down UK? ›

While interest rates have been rising quickly over the past year, we've actually seen mortgage rates going down in 2023. As a result of rising inflation, the Bank of England has increased the base rate to 4.5%, leaving many wondering what the state of play is for mortgage rates over the next six months to a year.

What will happen to interest rates in 2023 UK? ›

In 2022, the BoE hiked rates eight times, bringing it to 3.5% by the end of year. In 2023, the UK central bank hiked rates once again by 50 basis points (bps) to 4% in February, by 0.25% to 4.25% at the March meeting, and by another 25 bps in May, leading the rate to 4.5%.

Will interest rates go down in 2023 Bank of England? ›

On Thursday 11 May 2023, we raised our interest rate (Bank Rate) by 0.25 percentage points to 4.5%. Our interest rate influences many other rates in the UK, including those you might have for a loan, mortgage or savings account. Bank Rate is also widely known as 'the base rate' or just 'the interest rate'.

How high will UK interest rates go? ›

UK interest rates could potentially rise up to 4.75 per cent by the end of 2023, argues Costas Milas. This is because high public expectations of inflation have the potential of putting additional pressure on current inflation through demand for higher wages.

Will interest rates go down in September 2023? ›

After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023. The interest rate for a 30-year fixed-rate mortgage in the U.S. is expected to drop to 5.25% by the end of this year, according to a forecast by the financial services website Bankrate.

What will UK mortgage rate be in 2025? ›

The experts' forecasts on when base rate will go into reverse - and what borrowers and savers can do. The Bank of England will cut the base rate to 3 per cent by the end of next year and then 2.5 per cent by the end of 2025, according to forecasts.

Will mortgage rates go down in 2023 or 2024? ›

These organizations predict that mortgage rates will decline through the first quarter of 2024. Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.

What will mortgage rates be in 2024 UK? ›

Its chief UK economist Paul Dales said: “We suspect that lingering inflation concerns will mean that the holding phase of the cycle will last until the first half of 2024.” Mr Dales forecast a drop in the base rate to 3% by the end of 2024.

What will UK interest rates be in 5 years? ›

After hitting a new high of 5%, UK interest rates are expected to fall sharply in the coming two years with rates possibly between 3.5% and 4% in 2024 before falling to between 3% and 3.5% in 2025. UK interest rates are expected to stabilise between 3.0% and 3.5% between 2025 and 2027.

How long will mortgage rates continue to rise UK? ›

The Bank of England base rate is expected to rise today, having a knock-on effect on mortgages. New research suggests inflation could remain above target levels for the next two years, keeping interest rates at relatively high levels and causing more woe for mortgage holders.

Will savings interest rates continue to rise in 2023 UK? ›

With inflation still running rampant at 10.7%, we'll likely see the base rate keep rising for a little while yet. But as inflation is forecast to drop back to below 1.4% by the end of 2024, the BoE is likely to start reducing the base rate in the coming years.

Will UK interest rates rise again in 2023? ›

It's expected to increase by 0.75% in 2023 and 2024, before rising by 1% in 2025. Overall, the BoE is more upbeat on its assessment of the UK economic outlook. Although it expects inflation to fall sharply this year, ending the fourth quarter at 5.1%, this is still above the 2% inflation target.

How high will interest rates go by the end of 2023? ›

So far in 2023, the Fed raised rates 0.25 percentage points twice. If they hike rates at the May meeting, it is likely to be another 0.25% jump, meaning interest rates will have increased by 0.75% in 2023, up to 5.25%.

What will the Bank of England rate be in 2023? ›

The Bank of England Monetary Policy Committee announced on 23 March 2023 to increase the Bank of England base rate to 4.25% from 4%.

Will UK interest rates rise in next 5 years? ›

Economists at UBS are also predicting a further interest rate rise in May, and are expecting inflation to average 6.5% in 2023 and 2.3% in 2024, before dropping to the Bank of England's 2% target by the end of 2025.

Where will mortgage rates be in 5 years? ›

The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.

How high will mortgage rates go? ›

While it expects the Fed to continue increasing rates to tame inflation, it believes that long-term rates have already peaked. “We expect that 30-year mortgage rates will end 2023 at 5.2%,” the organization noted in its forecast commentary. It reiterated the fourth-quarter 5.2% rate prediction in a Jan. 19 forecast.

Will mortgage rates go down in October 2023? ›

“[W]ith the rate of inflation decelerating rates should gently decline over the course of 2023.” National Association of Realtors (NAR). “[F]orecasts that … mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6.0% this year and to 5.6% in 2024.”

What will mortgage rates be in fall 2023? ›

The Mortgage Bankers Association predicts rates will fall to 5.5 percent by the end of 2023 as the economy weakens. The group revised its forecast upward a bit — it previously expected rates to fall to 5.3 percent.

What will interest rates be in 2023 2024? ›

Direct Loan Interest Rates for 2023-2024
Loan Type10-Year Treasury Note High YieldFixed Interest Rate
Direct Subsidized Loans and Direct Unsubsidized Loans for Undergraduate Students3.448%5.50%
Direct Unsubsidized Loans for Graduate and Professional Students3.448%7.05%
1 more row
May 16, 2023

Will UK mortgage rates fall in 2024? ›

As a whole, many experts have long suspected that mortgage interest rates will gradually fall over the course of 2023 and well into 2024, even if the Bank of England sets the base rate a bit higher.

What will mortgage rates be in 2026 UK? ›

The Bank's current projections state that interest rates will fall back to 3.6 per cent in 2025, declining further to 3.3 per cent in 2026.

What year will mortgage rates go down UK? ›

BoE forecasts predict that interest rates will peak at 4.75% at the end of 2023 before falling to around 3.5% by 2025. But while inflation remains high, there is the possibility of interest rates rising to counteract it and that could mean a 13th consecutive monthly rise might be on the cards in June.

Should I buy a house now or wait until 2023 UK? ›

For many, even a small slow down in house price growth will make getting on the ladder more affordable, making 2023 the year to buy. If you are thinking of making the leap to homeownership, it's worth getting in touch with a mortgage broker to find the best option for you.

Will interest rates go back down in 2024? ›

The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.

What is the interest rate forecast for 2025? ›

An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.

What will mortgage rates be in 2027 UK? ›

In a 2022 survey by the Bank of England, 40% of the participants (excluding “don't know” responses) said they expect the base rate to be below 2% by 2027 – a level rarely seen even in previous low rate periods.

What are predicted mortgage rates in 2028 UK? ›

Home loan rates will rise steadily before peaking in the second half of 2024, according to the latest forecasts for the UK's economy. The Office for Budget Responsibility said Thursday that mortgage rates will then stay above 4.5% through the first quarter of 2028.

What is the projection for mortgage rates in the UK? ›

Further interest rate hikes are accepted in 2023, with forecasts for interest rates UK showing the base rate can increase to between 4.25% and 4.75% by the middle of 2023 and remain around this level for the rest of the year.

What is the long term interest rate trend in the UK? ›

United Kingdom Long Term Interest Rate: Month Avg: United Kingdom: ECB Harmonised was reported at 3.54 % pa in Mar 2023, compared with 3.45 % pa in the previous month. UK Long Term Interest Rate data is updated monthly, available from Jan 1993 to Mar 2023.

What is the 5 year 5 year forward inflation expectation rate UK? ›

Basic Info. 5-Year, 5-Year Forward Inflation Expectation Rate is at 2.21%, compared to 2.24% the previous market day and 2.38% last year. This is lower than the long term average of 2.25%.

Will UK interest rates ever go down again? ›

Despite another hike expected in the UK, it has been predicted that interest rates will gradually return to pre-pandemic levels, which in turn would bring mortgage rates down.

Will mortgage rates go down over the next few years? ›

Other experts agree that rates will likely come down in the next few years. Even so, we're unlikely to see the low rates we saw in 2021. “Interest rates are currently at a 15-year high, so it's difficult to envision this lending environment as going …

Where can I get 7% interest on my money? ›

7% interest isn't something banks offer in the US, but one credit union, Landmark CU, pays 7.50% interest, though there are major requirements and stipulations. So, is it worth it?

Which bank gives 7% interest on savings account UK? ›

First Direct

Will there be more interest rate hikes in 2023? ›

The US Federal Reserve will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to a Reuters poll of economists. The poll also showed that a short and shallow US recession is likely this year.

Will interest rates come back down in 2023? ›

When it becomes more attractive to save money, consumers tend to spend less of it. But the Fed isn't done fighting inflation. And because of that, consumers should not expect interest rates to drop in 2023. However, rates may also not climb much from where they are today.

What is the mortgage industry outlook for 2023? ›

Our outlook for overall single-family mortgage originations in 2023 is $1.69 trillion and $2.03 trillion in 2024, a substantial contraction from our estimated 2022 volume of $2.36 trillion.

What are the interest rates predicted by the Bank of England in 2024? ›

Its chief UK economist Paul Dales said: “We suspect that lingering inflation concerns will mean that the holding phase of the cycle will last until the first half of 2024.” Mr Dales forecast a drop in the base rate to 3% by the end of 2024.

What are Bank of England interest rates for 2023? ›

The Bank of England Monetary Policy Committee announced on 11 May 2023 to increase the Bank of England base rate to 4.5% from 4.25%.

Will interest rates go down in 2024 UK? ›

The IMF's latest modelling shows the UK's natural rate of interest could fall to about 0.3 per cent by 2050. Richard Carter, head of fixed interest research at Quilter Cheviot, told This is Money: “We think the base rate is more likely to fall in 2024 than rise.

What will UK mortgage rates be in 2025? ›

The Bank of England will cut the base rate to 3 per cent by the end of next year and then 2.5 per cent by the end of 2025, according to forecasts. That would be a substantial decline from the current 4.25 per cent but would still represent rates rising like a rocket and falling like a feather.

Where will interest rates be at the end of 2023? ›

Mortgage Rate Predictions For 2023

How wide is the gap? Fannie Mae sees the average rate of a 30-year fixed getting to 6.8% in 2023. Meanwhile, the prediction from Freddie Mac is 6.4%. The Mortgage Bankers Association is the real outlier, projecting the 30-year rate at 5.2% next year.

What will happen to mortgage rates in 2024 UK? ›

In the longer term, Savills expects house prices to grow by 1% in 2024, followed by a larger increase of 7% in 2026 if mortgage lenders cut rates over the next 12 months and the base rate declines from mid-2024 as inflation falls.

What is the mortgage rate forecast for the next 5 years? ›

ING predicts rates to range from 5% in the second quarter of 2023, rising to 5.5% in the third quarter, and then falling back to 5% in the final quarter of the year. They also predict interest rates ranging between 3% and 4.25% in 2024, staying at 3% by the end of 2025.

What is the interest rate forecast for 2023 and 2024? ›

Both estimates are largely in line with fresh projections from officials in March. The Fed penciled in a 5-5.25 percent peak interest rate for 2023, after which officials see rates falling to 4.25-4.5 percent by the end of 2024.

Will mortgage rates go down in 2024? ›

Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.


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