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Mortgage rate reductions hopes dashed for UK borrowers

The chance for mortgage rate reductions has been dramatically affected by the latest ONS report, but what does this really mean for UK homeowners?

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 23 April 2024

2 min read

Mortgage rate reductions hopes dashed for UK borrowers

Last week, the potential for mortgage rates to drop was hit with another hammer blow thanks to yet another disappointing economic report. Mortgage borrowers who have been waiting for the anticipated rate reduction could be set for a longer wait than they had hoped for.

As we posted last Friday, the annual inflation rate for the United Kingdom fell by 0.2% to 3.2% in March 2024. This fell short of the predicted 3.1% from the City and has instantly led many investors and economic experts to pull back on their expectations for a rate reduction in the next few months. This recent report from Sky News explained more about why inflation has fallen and how this will affect UK consumers and discusses why inflation did not fall as much as expected.

BREAKING: Inflation falls to lowest level in three years

Market experts were previously predicting a rate cut by 0.25% to 5% in June 2024 following the next meeting of the Monetary Policy Committee (MPC). Those predictions have now been pushed back to later in the year, potentially as late as November.

Mortgage industry statistics suggest that as many as 1.6 million borrowers and existing customers are expected to have a rate increase in 2024. These customers will be coming to the end of a much lower fixed rate deal and moving to a significantly higher Standard Variable Rate (SVR).

Typical Standard Variable Rates are as high as 7% or 8% which could be £100’s or even £1,000’s to a borrower moving from a 1% or 2% Fixed rate deal. A typical mortgage borrower with a Fixed rate deal of 2.0% with a mortgage of £190,000 over 25 years will be currently paying £805 per month. The current lender Standard Variable Rates (SVR) of 8.0% would be £1,466 per month for the same mortgage amount and term, which is an incredible £661 per month more in interest alone.

Our mortgage experts have seen mortgage rates start to increase slightly across some of the Top 4 mortgage lenders in April ’24. We think that this reaction is in anticipation of a longer period of higher interest rates for the next several months of 2024.

It’s highly likely now that mortgage rates will remain higher than 5% for the next several months of 2024 until September or even November. Borrowers who are waiting for rates to fall might want to re-consider their plans and look at options for shorter term fixed rate deals.

Currently the average 2 year fixed rate deals are between 4.75% and 5.25% for most lenders and 4.5% to 5.0% for 5 years. Our mortgage experts are suggesting that this level would be the ‘new norm’ for most lenders for the foreseeable future.

It is still less likely that mortgage interest rates will go higher than the current Bank of England Base Rate of 5.25% at this stage. The economy still shows signs of recovery, yet at a slower rate than the City was predicting in Q1 of 2024.

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Is a fixed rate mortgage a good idea now?

High mortgage interest rates have caused stress and concern for families across the UK over the last few years, and switching to a fixed rate mortgage can help in some situations.

A fixed rate mortgage offers more financial security compared to a variable rate, as your mortgage payments won't change during your 'fixed term'. You can choose for your mortgage rate to be fixed for either 2, 3, 5, or 10 years, depending on your lender and which option feels right for you.

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Everything you need to know about fixed rate mortgages - MPO

Will mortgage rates go down in 2024 UK?

Our MPO Money Mum & Dad are constantly checking the market to see what is happening with UK mortgage rates. Many economic experts now believe that the Bank of England base rate will go down by 0.25% in the Summer of 2024, with rates potentially settling at around 3.5% next year.

Banks will generally use the BoE base rate to decide which mortgage rates to offer, and certain types of mortgage (tracker rate mortgages) will be directly affected by any BoE rate changes.

What is the current mortgage rate UK?

UK mortgage rates will change over time, and currently the Bank of England (BoE) base rate is 5.25%. The BoE interest rate directly affects how much people on tracker rate mortgages will pay, and can also cause lenders to adjust their Standard Variable Rates.

Our MPO mortgage experts are constantly checking the rates on offer from each mortgage lender, to keep UK consumers up to date with the latest changes.

How much do you need for a mortgage in UK?

It can be hard to figure out how much money you need to earn to get certain types of mortgage -especially if you are a first time buyer or it's been years since you applied for one.

A lot of UK lenders will want you to earn at least £20,000 per year to qualify for a mortgage, but this isn't a general rule. People with lower incomes may still be able to get a mortgage based on:

  • Your credit score/credit history
  • The mortgage lender that you apply to
  • The type of mortgage that you need
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How much do I need to earn to get a mortgage? - MPO

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