Tim Leonard
Adam French
UK mortgage rate forecast for September 2024
Mortgage rates are going down and may drop further, experts believe. With another cut in the base rate widely predicted in November, and a price war continuing between lenders, some fixed-rate mortgages have dropped to lows last seen two years ago.
But even more encouraging for borrowers is a growing consensus that there is room for rates to continue falling throughout the rest of the year.
“With the Bank of England making what some felt was a slightly bold move to “go early” with a base rate decrease in August, the immediate positive impact has been seen with mortgage rates, especially those providers funding in the swap market,” Ben Allkins, head of mortgages and protection at mortgage broker Just Mortgages, told NerdWallet UK. The swap market reflects the cost to lenders of funding fixed-rate mortgages, making it a key influence on the rates that providers set.
“Lenders have also been jostling for position in the early signs of a rate battle to boost their business levels into the final quarter of the year,” Allkins adds. “This perfect storm is likely to lead to further rate reductions, especially in the five-year market – we are already seeing a cluster of sub-4% rates in this space.”
Fixed-rate mortgages head down
As happened in July, and as was predicted last month, fixed mortgage rates fell throughout August. As a result, data from Rightmove shows the average five-year fixed mortgage rate stood at 4.74% on 28 August, notably lower than the 5.02% where it started the year. A similar fall has been seen among two-year fixed-rate mortgages, where the average rate has dropped to 5.10%, down from 5.43% at the beginning of 2024.
On the surface, this appears to be positive news for anyone eyeing up a fixed-rate mortgage. Indeed, typical rates available at every loan-to-value, regardless of deposit or equity, have dropped lower in the last couple of months. However, digging deeper into the data reveals that some borrowers have benefitted from the recent reductions more than others.
The definite winners have been those with larger deposits or equity in their homes, while prospective first-time buyers are those most likely to have missed out. For example, the average rate on two-year fixed-rate mortgages if you have a 40% deposit or equity, which means you can take out a 60% loan-to-value mortgage, has fallen from 4.82% at the start of 2024 to 4.38% – a drop of 0.44 percentage points. However, if you have a smaller 5% deposit and need a 95% LTV mortgage, the current average two-year fixed-rate of 5.83% currently remains higher than the average of 5.81% recorded at the start of the year.
Tracker mortgage rates and SVRs fall
Those paying their lender’s standard variable rate (SVR) or holding a tracker mortgage will be all too familiar with the frustrations felt by first-time buyers. However, on 1 August, a four-year-plus wait for the base rate to move in their favour finally came to an end.
Five policymakers at the Bank of England voted to lower the rate from 5.25% to 5.00%, winning out against the four who preferred to leave the rate unchanged. As a result, the base rate was lowered for the first time since March 2020, with many mortgage rates falling in turn. The investment platform Hargreaves Lansdown suggests around half a million mortgage holders can now look forward to saving more than £330 a year on their repayments.
For those with a tracker mortgage, which is guaranteed to move in line with the base rate, lower mortgage repayments will almost certainly be on the way. However, things are less certain for borrowers paying an SVR, over which lenders tend to have more discretion.
Since the base rate announcement, a significant number of lenders have confirmed their SVR will fall. This includes Bank of Scotland, Barclays, Clydesdale Bank, Co-op Bank, Coventry Building Society, Halifax, Lloyds, Nationwide, Principality Building Society, Santander, Scottish Widows, TSB, Virgin Money, West Brom Building Society, Yorkshire Bank, and Yorkshire Building Society. However, not every lender is dropping their SVR by the full 0.25 percentage point reduction seen in the base rate. There are also plenty of lenders that are yet to confirm their intentions either way.
Next base rate cut expected in November
Understandably, attention has now turned to when the base rate might fall again. There are three more base rate announcements before the end of the year – on 19 September, 7 November, and 19 December. A change in September isn’t currently expected.
Some of the thinking is that the latest economic signals are not yet strong enough to justify another cut. The latest wage growth data remained stickier than was expected and, a day later, it was also confirmed that inflation had crept higher in July, rising from its 2% target to 2.2%. Crucially, however, this had been forecast, and the reading actually came in lower than was expected, as did the closely watched services inflation reading.
The consensus is that this will reassure the Bank that inflation is still under control. In turn, it’s thought this could leave the path clear for one, or maybe two, more base rate cuts before the year is out, but not before November.
All things being equal, the conclusion drawn by many experts is that this also provides scope for mortgage rates to carry on falling in the coming months. However, given the circumstances, and bearing in mind how far, and how fast, rates have fallen recently, it could be that the pace of reductions starts to slow.
“Small and often will be the phrase that pays on mortgage changes over the next few months,” Justin Moy, managing director of independent broker EHF Mortgages, told NerdWallet UK. “Fixed rates will likely continue to slide into September, with the improvements to the general UK economy, some healthy competition between high street lenders, and the likely output from the US economy challenges. The base rate still looks to be priced with one more rate cut, but there is a lot of catchup between equivalent fixed and tracker deals, with trackers priced up to 1% more for equivalent two-year deals. That suggests that the base rate has a lot of ground to catch up in the coming months and that fixed rates won’t move significantly either.”
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