Could mortgage rates drop further in 2024? Here's what you need to know

In 2022 and 2023, interest rates and mortgage repayments rocketed. But in 2024, many lenders reduced their fixed-rate deals, which was a welcome relief for homeowners.

In the new year, the Bank of England (BoE) maintained its base rate at 5.25%. However, certain lenders decided to decrease the interest rate on their fixed-term mortgages. This could be good news for the 1.6 million UK households who will see their fixed-rate deal come to an end in 2024.

If you’re one of them though, you may be wondering whether it’s worth waiting a little longer to see if rates drop any further later on in the year, before committing to a new fixed-term deal. Read on to discover what might happen to interest rates in 2024, why you may need to take care if you’re planning to wait, and how a financial adviser could help you.

Before you do, let’s look at why fixed-rate mortgages dropped.

Interest rates have dropped to below 4% for certain fixed-term deals

After Liz Truss and Kwasi Quarteng’s disastrous mini-budget in 2022 and 14 successive base rate hikes by the BoE, mortgage rates soared. For this, many homeowners – quite literally – paid the price. According to This is Money, 6.37% was the rate for the average five-year fixed-mortgage in the summer of 2023. For two-year deals, this reached 6.86%.

As we brought in the new year, lenders became increasingly concerned that potential homebuyers were discouraged from enquiring about a mortgage. In addition to this, the number of homeowners struggling to meet their monthly repayments had risen.

Small surprise then, that lenders took matters into their own hands and slashed interest rates on specific mortgage deals, even though the BoE maintained its rate of 5.25%. According to the This is Money article, more than 50 mortgage providers cut their fixed-term rates, with five-year deals dropping to an average of 5.24% on 17 January 2024.

The average two-year fixed-rate stood at 5.62%, and in some cases homeowners could secure a fixed-rate deal of less than 4%.

The initial fall in interest rates may begin to slow down

An article by The Times in January 2024 makes for interesting reading. It suggests that the BoE will continue to hold its rate at 5.25% until at least the second half of 2024, as the bank attempts to bring UK inflation down to its 2% target.

Indeed, it points to a report by the BoE’s Monetary Policy Committee, the group that decides how much the central bank’s interest rates should be. According to the article, the bank’s rates may not start to come down until autumn of this year and could drop to 4.25% by the end of 2024.

With this in mind, you may be waiting a little while before rates drop by any significant amount again. That said, even if the BoE’s rate does remain at 5.25%, lenders may still reduce their rates in a bid to gain commercial advantage over competitors.

It you’re tempted to wait to see what happens before taking up a new deal, however, you may need to take care.

Defaulting to your lender’s standard variable rate might be expensive

If your fixed-term deal is ending and you don’t want to commit to another one just yet, it might be wise to avoid switching to your lender’s standard variable rate (SVR). When the fixed-rate deals end they typically then default to the lender’s SVR, which can be significantly more expensive.

As such, your monthly repayments could soar. According to Money Saving Expert on 16 January 2024, the average SVR ranged from 6.99% to 9.49% depending on the provider. This means you may be paying more than twice the rate of some fixed-term mortgage deals.

If you do want to wait to see if interest rates drop but don’t want to fall foul of your lender’s SVR, you might want to consider a tracker mortgage. As this moves up or down in line with the BoE base rate, it tends to be less expensive than a lender’s SVR.

A financial adviser may be able to help you to find a better deal

Another way you could reduce your next fixed-rate loan is to work with a financial adviser who’s truly independent and deals with mortgages. Here are two important ways they might be able to help you.

1. Offer you whole of market access

If you work with a financial adviser who has access to the whole of the mortgage market, they may be able to find a better deal for you. This could help you to reduce your repayments.

2. Access deals that aren’t available to the public

As lenders are keen to attract business from financial advisers who deal with mortgages, they offer rates that are not widely available to the public. This means that an adviser may be able to secure a more attractive rate or a fixed-rate product than you’ll be able to secure by yourself.

Get in touch

If you’re looking to buy a home or your current mortgage deal is coming to an end, and you’d like to discuss the best options for you, please give us a call. We can be contacted on 01527 577775 or please feel free to speak to one of our advisers, as we’d be happy to help.

Please note, this article does not constitute financial advice and care should always be taken before making decisions related to borrowing money.


Thursday 15 February 2024