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When will UK mortgage rates start to fall?

As the Bank of England base rate is held steady for the second period in a row, when can borrowers expect to see mortgage rates begin to fall?

Written on 7 November 2023

With the Bank of England holding the base interest rate at 5.25% for the second time in a row – following nearly two years of constant interest rate rises, the natural question is when can mortgage holders and home buyers expect to see a fall in the interest rates of mortgages.

Such has been the unprecedented period of low interest rates and subsequent rapid increases, it’s difficult to believe that pre-2008 mortgage lenders would compete with each other to attract buyers and people switching their mortgages – thus keeping mortgage interest rates at or below the bade rate.

The rapid fall in the base rate led to the inevitable change of approach from lenders to have their interest rates above the base rate. When interest rates started to rapidly rise, lenders pushed up their own interest rates to way above the base rate as they struggled to predict the future and hedged their bets (of course, keeping savings rates as low as they could for as long as they feasibly could) – locking people in at eyewatering rates and pricing first time buyers out of the market altogether.

With recent inflationary pressures, expectations of property prices falling and homeowners choosing to sell previously lucrative but now expensive rental properties – especially for those living outside the UK – the number of new mortgages being issued is around 30% of the total issued pre-pandemic in 2019.

Mortgage rates showing signs of falling due to competition

In response, mortgage lenders are starting to offer rates at or just below the base rate to attract new borrowers.

This latest trend of slightly below base rate mortgages has been observed since July when the evidence was suggesting that inflation was likely to fall and while the UK is some way from the 2% target set by the Bank of England, expectations are growing that the base rate may be due to fall in the early part of 2024.

According to Moneyfacts, the average five-year rate was 5.87% with both Santander and Nationwide offering some 5-year mortgages at below 5%.

Other lenders are offering lower rates, but worryingly at much higher than usual costs. UK mortgage homeowners with mortgages are used to deciding upon whether to add a fixed £999 product fee to the total of the mortgage or pay up front. The latest strategy from firms such as Skipton has seen some lenders offering lower rates but with a fee based on a percentage of the amount borrowed, in some cases 5% of the total mortgage.

Virgin Money have also offered similar, with a lower 1% cost of mortgage but for a higher interest rate.

These patterns are currently being seen on the UK high street mortgage market which is not always available to expats and non-residents. However, with non-resident mortgages normally a little more expensive and slightly higher interest rates, it may be a bit longer before mortgage rates improve for expats.

Experts in our network are forecasting that while the early part of 2024 may see a slight increase in the base rate, the overall expectation for 2024 and 2025 is in line with other industry expectations which expect inflation to drop and interest rates to follow.

Always get advice before making a major financial decision

We are seeing more and more expats looking to discuss property sales, with a significant proportion due to the expectations of increasing mortgage costs.

We are therefore expecting to see property prices continue to fluctuate (some periods will show a fall in average sale price, while there may also be the occasional rise) as buyers look to make a quick purchase as sellers remain keen to avoid higher mortgage rates for the foreseeable future. However, this trend will shift once mortgage rates become more affordable and competitive with confidence in the housing market returns.

If your mortgage is coming up for renewal in the next few months, our advice is to speak to a mortgage expert before making any decisions about switching deals or selling your property. You may be surprised at the mortgage offers available for expats.

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