UK mortgage predictions: where will rates go next?

The BoE’s Monetary Policy Committee raised rates from 2.25% to 3% in November, which for someone with a typical tracker mortgage translates to about £73.50 more in payments per month, said The Times Money Mentor. 

Economists are expecting another interest rate hike to 3.5% at the BoE’s next meeting on 15 December, said Reuters.

Where will rates go in 2023 – and beyond?

By 2023, the average mortgage rate could hover around 5%, according to This Is Money. That will be a drop from the current highs of 6%, but still more expensive than the low pricing many borrowers currently on fixed deals will be used to.

But a lot will depend on the economic environment and lending competition, as well as decisions made by the BoE. 

The pricing of fixed-rate mortgage deals has been “edging down” recently, and “if this continues, we would expect five-year fixes below 4% by early 2023”, Mark Harris, of mortgage broker SPF Private Clients, told the i news site.

Lenders could lower rates even further if the base rate peaks at around 4.5% in early 2023, below the 6% initially projected. But even so, rates are “likely to remain sticky”, said Bloomberg economist Niraj Shah. “We may have to get used to a ‘new normal’ as we are unlikely to see the ultra-low interest rates we had all got used to.” 

Experts expect the BoE to ease up on the base rate in the second quarter of 2024, Bloomberg reported. “That should translate into slightly lower mortgage rates,” the website said.

What does this all mean for homeowners?

About three-quarters of UK homeowners are on fixed-rate deals, meaning their monthly payments remain the same for a set period of time. For these borrowers, the interest-rate changes “will have no effect on their mortgage rate in the short term”, according to UK Finance.

But anyone looking to get a new mortgage soon “could be in for a shock”, said This Is Money.

One way for borrowers to “try and ensure stability in their home finances” is to “think long-term when selecting their mortgage deals”, said Unbiased.co.uk. Long-term mortgage deals – those that last five or ten years – are an attractive option at the moment because their interest rates aren’t that much higher than those for short-term deals, the financial advice website said. 

Some buyers may be tempted to wait and see if mortgage rates drop in the new year but not everyone thinks that is a good idea. Borrowers who sit tight hoping for continued reductions will “need to think about how a rising base rate will affect their holding position”, David Hollingworth of LC Mortgages told the i news site.

Standard variable rates – the pricing that mortgages move to when a fixed-term deal comes to an end – are still climbing, “so could prove an expensive decision whilst waiting for a slightly better fix to come along”, Hollingworth said.

Article source: https://www.theweek.co.uk/business/personal-finance/958721/uk-mortgage-predictions-where-will-rates-go-next