UK mortgage rate forecast for October 2024
Mortgage rates are expected to fall for the fourth month in a row in October. With competition among lenders showing no signs of slowing, and a further cut in the base rate of interest still expected in November, commentators believe there is scope for the cost of mortgages to continue dropping.
Fixed-rate mortgages have been falling consistently since the middle of June. In the process, the best mortgage rates are now at lows not seen since before the mini-budget in September 2022.
“Mortgage lenders are still pushing to top the best buy tables,” Aaron Strutt, product and communications director at mortgage broker Trinity Financial, told NerdWallet UK. “Nationwide has just launched a 3.89% two-year fix to undercut Santander’s 3.99% two-year fix – these rates are currently the only sub-4% two-year fixes available to new customers. And Barclays has just launched a 3.70% five-year fixed rate for higher earners with a 40% deposit. This undercuts NatWest’s new 3.74% five-year fix and Nationwide’s 3.74% five-year fix.”
Fixed mortgage rates head lower again
Like the two forecasts that went before, last month’s predictions correctly suggested that rates would fall again. Thankfully, it is a headline that borrowers won’t tire of reading.
Having reached a recent high of 5.05% at the end of May, the average five-year fixed mortgage rate has fallen steadily in the months since to sit at 4.58% towards the end of September. The data, from Rightmove, shows that two-year fixed-rate mortgages started their descent later, but, from a peak of 5.44% in mid-June, have dropped to 4.93%. The lowest rates on offer over each term have been tumbling too.
“Mortgage rates have been coming down for a while now and it seems quite likely the cheapest two-year year fixes will get closer to 3.75%, while five-year fixes may well hit 3.5% soon,” said Strutt. “There is also likely to be another base rate reduction soon which may push mortgage rates down a bit more.”
Base rate held in September…
When the Bank of England lowered the base rate of interest to 5% in August, the general consensus was that there would be at least one, and perhaps two, more cuts before the end of the year. A hold in the rate was also widely expected in September, which duly happened.
The day before rate-setters met, it was confirmed that inflation held steady in August at 2.2%, just above the 2% target. Importantly, this was as economists had expected, and also slightly below the Bank’s forecast of 2.4%. The closely watched reading on services inflation crept higher, but the Bank expects it to ease slightly in the final quarter of the year. Generally, there is a feeling that it won’t be causing policymakers too much concern, which should bode well for borrowers who are keen to see mortgage rates continue to fall.
“Lenders are expected to keep inching rates down over the coming months as the Bank of England follows through with widely anticipated further cuts to the base rate,” Danni Hewson, head of financial analysis at investment platform AJ Bell, told NerdWallet UK. “Inflation is proving sticky, especially in the service sector, but worries about slowing growth and fraying consumer confidence is likely to counter concern for Monetary Policy Committee members, especially after the Fed delivered its own jumbo cut in September.”
…but expected to drop in November
The base rate vote in September delivered an eight to one majority in favour of keeping the rate on hold. A few days after the announcement, the governor of the Bank of England, Andrew Bailey, said he thinks “the path for interest rates will be downwards, gradually”. Shortly after that, another member of the rate-setting committee, Megan Greene, spoke of a “cautious, steady-as-she-goes approach” to further cuts.
The sole member who voted for change, Swati Dhingra, favoured lowering the rate to 4.75%. However, if the financial markets prove correct, she won’t be standing alone at the next meeting on 7 November.
The size of the majority that voted no change in September, and the cautious nature of the messages since, means investors are no longer fully pricing in a cut in November. However, with the odds at an 80% chance of a cut, many experts are still confidently predicting a November reduction, and the consensus is that it’s more likely to happen than not.
More rate reductions predicted for 2025
Whether another cut would immediately follow in December, as some have suggested is possible, is another question. In keeping with the Bank’s message that a “gradual approach” to cuts is needed, it could push the likelihood closer towards not. If it doesn’t happen, but economic data and sentiment remain on their current path, attention will turn to a potential cut early in the new year. Given investors and commentators currently expect the base rate to fall to 3.5%, and perhaps even lower, by the end of 2025, the direction of travel seems clear.
In theory, this should mean the fixed-rate mortgage price war that lenders are fighting will continue into next year. And for borrowers with tracker mortgages, and those paying their lender’s standard variable rate, both of which tend to follow the base rate, some meaningful reductions in their monthly mortgage repayments should be on the way.
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