With rising interest rates affecting homeowners and buyers alike, many are wondering: will mortgage rates go down soon? The answer to this question can have a significant impact on mortgage repayments, influencing affordability and long-term financial planning. Whether you’re looking to buy a home or remortgage your property, understanding the trends in mortgage rates is essential. In this article, we explore the factors shaping interest rates and what they mean for your mortgage repayments in the coming months.
Buyers are watching the Bank of England’s latest base rate announcements more closely than ever.
Despite the much-anticipated reduction from 5.25% to 5%, mortgage rates are expected to remain between 4% and 4.5% for the rest of the year.
However, mortgage rates have fallen since June last year, when the average five-year fixed-rate mortgage for a 75% loan-to-value deal peaked at 5.8%, adding hundreds of pounds to monthly repayments for buyers and homeowners.
Today, that same mortgage has dropped to an average rate of 4.4%.
Here’s how that difference translates into monthly mortgage payments.
Monthly repayments on a five-year fixed-rate 75% LTV over
| Mortgage value | £200,000 property value, 25% deposit | £300,000 property value, 25% deposit | £400,000 property value, 25% deposit | £500,000 property value, 25% deposit |
| 5.8% monthly repayments | £1,106 | £1,422 | ££1,896 | £2,370 |
| 4.4% monthly repayments | £962 | £1,237 | £1,650 | £2,063 |
Mortgage Rates Unlikely to Fall Below 4%
Buyers hoping for significantly lower mortgage rates this year may be disappointed, as they are unlikely to decline much further, even if inflation and the Base Rate continue to fall.
Explanation
Expectations of lower interest rates are already reflected in fixed-rate mortgages.
A reduction in interest rates could lead to a modest further decline in mortgage rates, but the extent of this will depend on how low money markets expect the Base Rate to fall.
Economists currently predict the Base Rate will drop to 3.5% by the end of 2025, meaning mortgage rates are likely to remain around 4% or slightly higher.
Why Are Mortgage Rates Falling?
Mortgage rates began to decline in the latter half of 2023, as inflation dropped from 6.3% in September to 4.2% in December.
In June this year, inflation reached its 2% target, though it has since risen slightly to 2.2%.
However, the Bank of England kept the Base Rate at 5.25% for seven consecutive meetings before lowering it to 5% in August this year.
By the end of 2025, it is expected to reduce the rate further to 3.5%.
The Bank Rate determines the interest paid by the Bank of England to commercial banks that hold funds with them. It also influences the rates those banks charge for borrowing and pay on savings.
What Factors Influence Interest Rates?
Inflation has been the main cause of high interest rates in the UK over the past 30 months. An unexpected increase in demand—or a reduction in supply—can drive inflation higher.
At the end of 2021, the Bank of England began raising the Base Rate to control inflation and slow the rise in prices of everyday essentials, such as food, petrol, gas, and electricity.
This strategy has been effective, with inflation now close to its 2% target. However, the Bank of England must keep the Base Rate sufficiently high to prevent inflation from rising again.
Global shocks, such as wars, pandemics, or disruptions to key transport routes like the Suez Canal, can also affect inflation by impacting the global movement of goods.
How Buyer Affordability Could Improve
Despite ongoing challenges, several factors are set to enhance buyer affordability this year—primarily, rising wages alongside stable house prices.
This trend is already taking shape, boosting confidence among prospective buyers.
“Rising household disposable incomes are expected to be the key driver of improved housing affordability,
“Disposable incomes are forecast to increase by 3.5% over the year, while house prices are likely to remain largely unchanged.”
Indeed, the housing market is already gaining momentum, with the number of sales agreed increasing by 9% year-on-year.
This upturn is also encouraging more sellers to enter the market, providing buyers with a greater selection of properties.
More Choice for Buyers
There are now more homes for sale than at any point in the past six years, improving buyer choice and supporting increased sales.
The average estate agent currently has 33 properties on the market, representing a 16% rise compared to last year.
A greater supply of homes means more sellers—many of whom are also buyers themselves.
With more properties available, buyers have greater flexibility when negotiating prices.
Affordable Areas Remain Popular with Buyers
While buyer and seller activity is increasing across the UK, the most affordable regions are proving to be the biggest draw—especially in a period of higher mortgage rates.
“Sales activity is rising across the board, with the strongest growth seen in areas with lower house prices, such as Yorkshire and the Humber (11%) and the North West (13%),”. Meanwhile, the greatest increase in new property listings has been recorded in the South West (28%) and the North East (26%).
In London, the supply of homes for sale has risen by just 8%, meaning house prices in the capital are rebounding more quickly than in other regions, as competition among buyers remains strong.
Asking Price Discounts Narrow as House Prices Stabilise
Although it remains a buyer’s market, the discounts offered by sellers are gradually shrinking.
At present, UK buyers are paying an average of 96.8% of the asking price—up from 95.6% last October.
In monetary terms, this equates to buyers securing properties for around £16,600 below the asking price for sales agreed, compared to £23,000 below the asking price in October 2023.
There remains a north-south divide in house price trends, with prices continuing to fall in the south while the north experiences growth.
However, all regions are seeing higher annual price inflation than six months ago, as sales volumes recover and pricing levels firm up.
While there is still scope for negotiation, house prices are now holding steady and further declines are not expected for the remainder of the year.
Predicting mortgage rates is always challenging, as they depend on various economic factors, including inflation and central bank policies. While there are signs that rates may stabilise or even decrease in the future, homeowners and buyers should remain prepared for fluctuations. If you’re looking to secure a mortgage, comparing lenders and considering fixed-rate options can provide greater certainty in your mortgage repayments. Staying informed and seeking professional advice will help you navigate the market and make the best financial decisions.
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