UK mortgage rates drop despite 14th BoE rate rise

UK mortgage rates drop despite 14th BoE rate rise

As many economists predicted, the Bank of England voted for yet another rise to UK interest rates last week. This is the 14^th consecutive rise which leaves the UK’s rates at their highest level since 2008.

But what does this mean for mortgages? Several mortgage lenders have actually cut rates over the last few weeks with much speculation that the higher rates have now peaked.

There has been a lot of turbulence and uncertainty in the mortgage market during 2023, so the potential for lower rates will be welcome news for many homeowners and aspiring buyers.

More about mortgages:

• What is a mortgage?
• How to find the right mortgage deals

What has happened with the BoE base interest rate?

Last Thursday (3^rd August), the Bank of England voted to raise UK interest rates for the 14^th consecutive time. This puts rates at the highest level in 15 years since the global financial crash of 2008.

The UK’s inflation rate still sits at 7.9% which is far higher than the ideal figure for economic growth (2%).

With inflation still at stubbornly high levels, the Monetary Policy Committee (MPC) voted to raise interest rates again to combat this. Inflation has started to fall (though at a slower rate than is ideal). This means there is potential for the Bank of England to begin lowering rates, or at least stop increasing them by the end of the year.

However, Huw Pill (the Bank of England Chief Economist) has hinted that rates are likely to remain high for the foreseeable future.

Why have lenders cut mortgage interest rates?

Lenders have cut interest rates as although the BoE rate is consider, rates are also affected by ‘SWAP rates’.

A SWAP rate is used by lenders to assess what they think interest rates will be in the future. As inflation begins to drop, it’s becoming more likely the BoE will decrease, giving lenders more confidence to decrease their rates.

House prices have also been continuously dropping in recent months. House prices have not fallen at such a considerable rate since 2009, where according to Savills UK house prices dropped by 20% within 16 months.

Lower rates for mortgages can help encourage warier buyers, to keep the market moving and help to avoid a potential market crash.

Which lenders have cut mortgage interest rates?

Several mortgage lenders have decided to cut rates to try and encourage growth in the mortgage market – and prevent a crash if possible.

• NatWest
• Halifax
• Virgin Money
• Nationwide
• Barclays
• TSB
• HSBC
• Santander
• Coventry Building Society

According to figures from MoneyFacts, the average two year fixed rate mortgage fell to 6.79% interest (from 6.81%). Five year fixed rates have also dropped 0.02% on average (to 6.31%).

Is now a good time to get a mortgage?

This is difficult to say as there are definite pros and cons to consider. House prices are low and certain lenders have cut rates, meaning it’s possible that there will be some good deals available.

If you can lock in a good, fixed rate deal now might be the time to do so. With UK base interest rates consistently rising, there’s no telling whether the lower rates currently on offer will still be available in a few months. If Bank of England base rates continue to rise, it’s possible many lenders will end up raising rates again.

Our best suggestion would be to talk to an independent mortgage broker if you have any questions about getting a new mortgage or remortgaging your home.

Related articles

Here is all the latest mortgage news affecting homeowners and buyers in the UK:

• Average property prices in the UK fall 0.2% in July
• House prices falling at highest rate since 2009
• 11 million UK residents struggling with bills
• MPO Interest Rate Update May 2023
• UK Inflation falls to 7.9% – but what does this mean?

Resources

Bank of England – Interest Rates and Bank Rate

Nationwide – Bank of England base rate changes and your mortgage

Statista – Average interest rates for mortgages in the UK (2000 – 2023)