What's the latest on the UK mortgage interest rates?

If you’re keeping an eye on the UK mortgage market, there's been quite a bit of talk recently regarding interest rates and their impact on mortgage rates. The last few years have been turbulent with mortgage rates reaching rock bottom and then jumping up to shocking highs. 

The Bank of England (BoE) plays a crucial role in setting the Base Rate, which directly influences mortgage rates. The Base Rate has been at 5.25% since August 2023. This decision is revisited approximately every six weeks during BoE meetings. Excitingly, UK inflation has recently dropped to the Bank’s 2% target for the first time since 2021, a significant development that could signal future changes in interest rates.

Mortgage rates slightly decreased throughout the end of June 2024. This positive trend follows encouraging economic news and the possibility of a Base Rate reduction later this summer. Many high-profile lenders, including Barclays, HSBC, and Santander, have already started making reductions to select mortgage rates.

Current rates 

Here are some examples of mortgage rates over the past few weeks, although these are subject to change. You should always check the current rates. 

• Five-Year Fixed Rate Mortgage: The average rate is now 5.02%, down from 5.03%.
• Two-Year Fixed Rate Mortgage: The average rate is 5.42%, down from 5.44%.
• Five-Year Fixed: 4.23%, down from 4.28%.
• Two-Year Fixed: 4.67%, down from 4.75%.
• Barclays: Reduced its two-year fixed rate at 60% loan-to-value (LTV) from 4.99% to 4.68% and its five-year deal from 4.41% to 4.23%.
• HSBC: Announced forthcoming rate cuts this week.

While we’re not likely to see the extremely low mortgage rates of 1% or 2% return anytime soon, the potential for further reductions is strong. This is especially relevant for the approximately 1.5 million households needing to remortgage this year, who may face an average payment increase of £1,800 annually, according to the Resolution Foundation.

In addition, the trend of "ultra-long mortgages" is on the rise, particularly among younger buyers. These extended mortgage terms aim to make monthly payments more affordable, although they will extend into retirement years. The average mortgage term is around 25 years, but longer terms such as 30 and even 40-year ones are available

Will mortgage rates decrease?

Given the current Base Rate of 5.25%, the highest in 16 years, many are wondering when it might decrease. While inflation has recently dropped to the BoE’s target of 2%, other inflation measures remain above desired levels. This complexity has postponed the anticipated rate cut initially expected in the spring. 

However, there are indications of a potential interest rate reduction in the coming months. The BoE must balance curbing inflation with avoiding economic harm or a scenario where rates have to be increased again soon after a cut. The International Monetary Fund (IMF) suggests UK interest rates could fall to 3.5% by the end of 2025, contingent on inflation control and economic conditions.

The mortgage market is currently seeing a gradual but steady reduction in rates, largely influenced by the economic outlook and lender competition. While borrowers may not experience the exceptionally low rates of past years, the trend towards lower rates is a positive sign. Keep an eye on updates from the Bank of England and your lender for the most current information and opportunities to secure favourable mortgage terms.

For homebuyers and those looking to remortgage, this period of rate cuts could present a timely opportunity to lock in a better deal.

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