Mortgage rates to drop below 4pc ‘within weeks’

March 23, 2024

2 minutes read

Fixed mortgage rates are expected to dip below 4pc within weeks, following lower-than-expected inflation figures and an upbeat outlook from the Bank of England.

Experts said lenders were poised to trim five-year mortgage rates as they react to an improving economic picture, easing affordability pressures on borrowers and fuelling optimism among homeowners.

The Bank of England maintained the Bank Rate at 5.25pc this week, after inflation rose by 3.4pc in February, lower than the anticipated 3.6pc.

For the first time since 2021, no member of the Bank’s Monetary Policy Committee (MPC) voted in favour of increasing the rate.

Before the announcement, NatWest had already said it would cut remortgage deals by up to 0.24pc, and tracker mortgages by up to 0.40pc.

David Hollingworth, of brokerage London and Country Mortgages, said he expected to see rates heading towards 4pc within the next month.

He added: “We won’t see sub-4pc next week, but it’s a case of weeks and months, assuming no more negative data comes up.

“The Bank of England is now more open to the prospect of the Bank Rate coming down, which is driving optimism.

“A lot of the anticipated Bank Rate cuts are already priced in [to mortgage deals], so it depends if we see improvement quicker than expected.

“Rates won’t be slashed; there might be quite a few small rate cuts. In the next month, all things being equal, if falls in the swap rate continue, we could easily see lenders cutting back, and five-year fixed rates heading back towards 4pc.”

Swap rates – the main pricing mechanism for fixed mortgages – dipped following the Bank of England’s announcement on Thursday.

A number of sub-4pc fixed-rate mortgage deals were available in January, but all disappeared during the following month with lenders anticipating that interest rates would reduce at a slower pace than previously thought.

Riz Malik, of mortgage brokerage R3, said lenders hadn’t yet reacted to the latest Bank Rate decision and inflation figures, but that sentiment had shifted.

“[The MPC’s] voting record shows that the propensity to raise rates has vanished, and better-than-expected inflation suggests cuts will come earlier.

“This will raise hope of this mythical Bank Rate cut that we’re all desperate for. The data was as good as it was going to get.

“There’s a possibility that some lenders will hit 4pc on five-year fixed mortgage rates in the next couple of weeks. This will depend on swap rates and how strong demand is. But the number offering 4pc will increase going forward.”

More than 1.5 million homeowners are due to reach the end of fixed-rate mortgage deals throughout 2024, with many being forced to refinance at rates that are double what they are used to.

The average two-year fixed-rate deal is now 5.81pc and the average five-year deal is 5.39pc, according to the data firm Moneyfacts, down from nearly 7pc in July 2023.

However, this is still a big jump for those who had taken out a two-year deal in early 2022, when average rates were well below 3pc.

Oliver Laver, of Mortgage Key, was more cautious about the prospect of mortgage rates coming down quickly.

He said: “I think we’re going to see sub-4pc on a five-year fixed mortgage in two or three months. But the question is whether they sit there.

“We might then see [mortgage rates] going back up again, as inflation proves difficult to get down further. I see a hot jobs market in the US, and that worries me.

“We might be looking at Q4 before it settles. And we’ve got an election, which adds uncertainty.”