Why are mortgage rates so high?
Towards the end of 2023, average fixed mortgage rates were declining. They continued declining at the very start of 2024, however, it's very difficult to predict if they will continue to do so. This is why it's wise to compare mortgage rates regularly if you plan to take on a new deal.
From the end of 2021 until August 2023, the Bank of England increased the base rate 14 times in a row to 5.25%. This was to combat rising inflation, although UK inflation has recently fallen to its target level of 2%. The base rate was subsequently reduced for the first time since 2020, to 5%.
Swap rates have continued to change a lot in the last year, with some lenders changing fixed mortgage rates as a result. This has meant there has been continued volatility in the market despite the base rate remaining the same for much of the last year.
Will mortgage rates fall or rise in 2024?
The Bank of England's Monetary Policy Committee is next set to make a decision about whether to increase the base rate on 19 September 2024.
But it's important to note, changes to the base rate don't necessarily mean that mortgage rates will also change. While certain mortgage deals (tracker mortgages) have rates directly linked to the base rate, the rates on other types of mortgages are influenced by other factors in addition to the base rate, such as swap rates and the lender's discretion.
Unfortunately, recent volatility in mortgage deals means it's very hard to predict what will happen to mortgage rates over the next few months. Some lenders have reduced rates following the base rate reduction on 1 August, but it's hard to say whether this trend will continue.
But if you are due to remortgage, the average standard variable rate (which you're moved to after your current deal ends) is still above 8%, which is much higher than the average fixed mortgage rate.
This graph shows how fixed mortgage rates changed over the course of 2023 due to various factors. At the beginning of 2024, rates fell but have started to rise again in recent weeks.
What should I do if mortgage rates rise?
If you're concerned about your mortgage interest rate rising, then you may want to consider:
Fixing your mortgage – this will keep your rate the same for a set period of time. If your current deal hasn't ended, however, make sure you're aware of any early repayment charges (ERCs) when you compare mortgage rates
Secure a new interest rate today – if you're due to remortgage within the next six months, you can lock in a new rate now and switch when your deal ends, avoiding an ERC. If rates fall before your deal ends, you can switch again to get a better option
What should I do if mortgage rates fall?
if you're worried that interest rates will fall after you've secured a mortgage, you could:
Opt for a shorter-term fixed-rate mortgage deal – this means you're locked into that rate for less time
Consider a variable-rate mortgage, such as a discount deal – but keep in mind that if rates rise, you'll end up with higher monthly repayments
FAQs
UK interest rates were cut on 1 August 2024 for the first time since 2020, bringing relief to many households and businesses struggling with higher mortgage costs and debt repayments. The Bank of England cut the base rate from 5.25% to 5% in a knife-edge decision that split the Monetary Policy Committee (MPC).
How high will mortgage interest rates be in 2024? ›
Indeed, Wells Fargo estimates the 30-year fixed mortgage rate will average 6.5% by the end of 2024 and 5.9% by the end of 2025. If you bought a home in 2022 or 2023, the prospect of refinancing your mortgage might seem appealing as rates fall.
What is the UK mortgage rate today? ›
Fixed-rate mortgages
| Mortgage | Initial interest rate | Followed by a Variable Rate, currently |
|---|
| 2 Year Fixed Standard | 4.14% fixed | 6.99% |
| 5 Year Fixed Fee Saver | 3.99% fixed | 6.99% |
| 5 Year Fixed Standard | 3.82% fixed | 6.99% |
| 5 Year Fixed Premier Standard | 3.79% fixed | 6.99% |
1 more rowOur forecast that Bank Rate will be cut faster than most expect from 5.00% now to 3.00% by the end of 2025 explains why we think the average mortgage rate will fall to a little below 4.0% by the end of next year.
Will mortgage rates ever be 3% again? ›
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
Where will UK mortgage rates be in 5 years? ›
According to the latest implied rate chart by Bloomberg, UK Interest Rates are expected to remain at 5.25% until the summer of 2024. The first UK Interest Rate cut is expected by August 2024 with rates predicted to fall to 5.00% with a further rate cut expected by November pushing UK interest rates down to 4.75%.
How high could mortgage rates go by 2025? ›
Major institutions like Freddie Mac anticipate that mortgage rates will gradually decrease in 2025, with projections hovering around the high 5% range early that year and potentially reaching 5.9% by December.
Should you lock in your mortgage rate? ›
If you don't lock in your interest rate, rising interest rates could force you to make a higher down payment or pay points on your closing agreement. When you pay an up-front fee—or mortgage points—to a lender, you're providing more money initially in order to get a lower interest rate.
Can you negotiate your mortgage interest rate? ›
Yes, negotiate your mortgage rate
Mortgage interest rates are not set in stone, and research confirms that those who get multiple quotes often secure lower rates. A surprising number of home buyers and homeowners, however, forego negotiations and settle with the very first lender they encounter.
Are UK mortgage rates falling? ›
Following the August base rate cut, mortgage rates on fixed rate mortgages have been falling as lenders slashed rates. Many experts are predicting one further base rate cut in 2024 and for interest rates to fall to around 4% by the end of next year.
The highest ever interest rate in the UK was 17%, recorded in November 1979. According to the Bank of England, the rate rose gradually from 5.5% in October 1977, reaching a peak of 17% by the end of 1979.
Why are mortgage rates so high in UK? ›
The Bank of England moves rates up and down in order to control UK inflation - which is the increase in the price of something over time. When inflation is high, the Bank may decide to raise rates to keep it at or near the 2% target.
Will UK mortgage rates go down in 2024? ›
Mortgage rates unlikely to drop below 4% in 2024
'Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range. '
Will mortgage rates drop by 2026 UK? ›
Mortgage rates are expected to remain below 4% until 2026
House prices will fall less than previously forecast in 2024 and mortgage rates are also predicted to rise less steeply, data shows.
What is the current UK interest rate? ›
The current Bank of England base rate is 5%.
From December 2021 to August 2023, the Bank's rate-setting Monetary Policy Committee (MPC) raised the base rate 14 consecutive times to 5.25%.
What will interest rates be in 2026? ›
CPI inflation to fall further than most expect in 2025 and prompt BoE to cut interest rates to 3.00% by early 2026.
Will mortgage rates go down in 2027? ›
Will mortgage rates come down in the next 5 years? Lord: “For the rest of 2023, I predict rates for the 30-year fixed-rate mortgage will average 7.3%, followed by 6.1% in 2024, 5.5% in 2025, 5% in 2026, 4.5% in 2027, and 4.5% in 2028.
What is the long-term outlook for interest rates? ›
In July 2023, overnight interest rate climbed to 5%, the highest since 2001. We expect the overnight interest rate to decline between 1.5% to 2% from its peak by the end of 2026. The long-term trend of declining yields has ended and we are unlikely ever to see low rates like those of 2020-2021 or the 2009-2010 again.
Why are mortgage rates so high? ›
When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.
