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UK mortgage rate forecast for November 2024
There are hopes mortgage rates could soon start to fall again, after four straight months of downward momentum stalled in October.
While better-than-expected inflation data shortened the odds of a base rate cut when policymakers next meet, the cost of fixed mortgage rates headed north during much of the last month.
Rate reductions had been the norm since the middle of June, as lenders had the confidence to more actively compete with one another for the mortgage business they wanted.
However, in mid-October, the rate war came to a halt. Concern over the potential contents of the Autumn budget, tensions in the Middle East, and mixed messages from Bank of England rate-setters caused swap rates to increase. Faced with higher funding costs, lenders reacted, leading to the first rise in the average cost of fixed-rate mortgages in four months.
“Mortgage rates have had a wobble in October,” Justin Moy, managing director of independent broker EHF Mortgages, told NerdWallet UK. “There have been plenty of distractions from potential world oil price hikes, and anticipation of the Labour Budget causing money markets to be unsettled, even when headline inflation hit a three-year low.”
Fixed-rate mortgages move higher…
The month began with further rate cuts, though the pace slowed before some lenders started to nudge rates higher.
Coventry Building Society, which had been offering some of the lowest fixed rates, was among the first to make a notable upward move, and others soon followed, including Barclays, Halifax, HSBC, NatWest, Santander, TSB and Virgin Money. Over two weeks, the average cost of five-year mortgages increased from 4.54% to 4.64% as a result.
However, rate rises were not blanket across the board. In particular, competition for the attention of first-time buyers remained strong. In the middle of October, while other average rates were rising, the only subset of mortgages where rates fell were at 95% loan-to-value, which require a minimum 5% deposit.
…but NatWest cuts give hope
Cause for optimism arrived later in the month when NatWest announced a number of rate reductions. In the context of the wider market, one mortgage broker described the move as “highly aggressive”. Many of the cuts reversed the increases the bank had made only a week earlier. However, some went further, asking the question of whether other lenders may also turn full circle. Within days, Barclays announced it was lowering some of its rates.
“It seems NatWest may be having buyers’ remorse and are rewinding the increases of the past week or so, with some extra savings for borrowers on top,” said Hannah Bashford, director at mortgage advisory service Model Financial Solutions. “Whatever the reason for these cuts, these are certainly rate reductions that will turn heads. It’s hard to see other lenders not having to follow suit.”
The great unknown at the time of writing is the makeup of Chancellor Rachel Reeves’ first Budget on 30 October. It could also cause other lenders to pause for thought rather than immediately follow NatWest’s lead in resuming rate reductions. Some experts voiced surprise that a major lender was willing to display such conviction this side of the announcement.
The uncertainty attached to not knowing will dissipate once the new Government’s intentions have been revealed. However, the Budget’s effect on borrowers and mortgage rates will depend on how well the spending and tax plans are received by markets and policymakers.
“Once we understand the impact of that Labour budget, I would expect to see rates back on track and continue their downward slide, assuming we avoid any shocks,” says Moy.
Base rate cut expected in November
Given October’s forecast suggested that mortgage rates would drop further, the volatility seen in the fixed-rate market over the last month is a timely reminder of how quickly things can change. However, the good news for borrowers with tracker mortgages, and those paying a standard variable rate, is that the base rate of interest is still expected to be cut at least once more this year, and potentially twice.
In fact, following the publication of the latest inflation data, the financial markets became even more convinced the rate will be lowered from its current level of 5% on 7 November. The odds have also shortened on the likelihood of another reduction when the decision of the following rate-setting meeting is published on 19 December.
The hardening of expectations has mainly been fuelled by a much larger fall in inflation in September than had been forecast. While investors had expected headline consumer prices index inflation to drop to 1.9%, the rate actually fell to 1.7%, the lowest reading since April 2021. The closely monitored services inflation figure also fell by more than had been predicted, leaving some to suggest it will allow the Bank to pick up the pace of rate cuts heading into 2025.
“Base rate certainly has one rate cut this side of Christmas, maybe two if the Budget behaves. A 0.5% cut is not out of the question,” says Moy. “For mortgage pricing, tracker rate products are well out of line with their equivalent fixed mortgage deals. So whilst a base rate cut is obviously on the cards, I don’t expect fixed rates to follow that same reduction just yet. Improvements yes, but the base rate will move more than the fixed rates if we see a big base cut.”
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