Mortgage interest rates: when will they come down?
Millions of people are holding out for a better deal this year
Mortgage rates are slowly rising once again, meaning borrowers will have to grapple with higher costs to get on or move up the property ladder.
Last year, mortgage interest costs increased several times as the Bank of England attempted to tackle high inflation levels.
Rates have "edged up again in recent weeks", Amanda Bryden, head of mortgages at Halifax told the BBC, due to predicted "future Bank of England base rate changes". It ultimately means anyone with a mortgage, and those looking to buy a home for the first time will face a "significant challenge" in securing an affordable deal.
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This month, the BoE once again kept interest rates unchanged as was widely predicted by industry experts. But rates have been creeping up as experts think the central bank will "make fewer interest rate cuts this year", the BBC added.
What determines mortgage rates?
Lenders consider a range of factors when setting their mortgage rates.
One factor is the cost of borrowing, known as the interest rate, which is set by the BoE base rate.
If the BoE's interest rate rises, home loans will usually become more expensive as lenders "pass on the increase in the bank rate to their customers", said MoneySuperMarket. So a higher base rate usually translates to higher monthly mortgage payments.
Another consideration is the cost the banks face for obtaining funds to lend on the financial markets, which is based on swap rates. Swap rates are "a contractual arrangement between two parties" involving swapping a set of interest payments for another, said Private Finance, something that happens "over a specific duration".
Lenders "often see swaps as their cost of funding", and consequently "they need to make a margin on top of these," the website added. They only impact fixed-rate mortgages, but "the higher the swap rate, the higher the mortgage rate" as a general rule of thumb.
When will mortgage rates come down again?
Mortgage rates and when they will come down are likely to hinge on the decision the BoE makes regarding its base rate. While the central bank is expected to cut rates this year, "opinions on when exactly this could happen, and by how much, naturally vary", said Zoopla.
In fact, at present, it appears the trajectory of mortgage rate movement is the opposite, as rates increase rather than decrease as many would hope.
A "blow to borrowers" occurred when "big names" such as Nationwide, NatWest and Santander increased their rates on fixed-rate mortgage deals, Zoopla added.
New data has also shown the average mortgage rates on two- and five-year fixed-rate deals increased in pace when compared to the previous month. This was the biggest month-on-month rise since March 2024, according to the Moneyfacts UK Mortgage Trends Treasury Report.
There may be hope on the horizon, as financial markets are "currently predicting" an interest rate cut may take place in June or August of this year, said the HomeOwners Alliance. When interest rates fall, "as a general rule", mortgage rates typically fall also. However, numerous factors such as the rate of inflation will also be at play.
And for those worried about the mortgage market as a whole spiralling out of control due to rising rates in the meantime, a "full-blown crisis" is ultimately "looking unlikely", said This Is Money. As long as employment "remains strong" and the jobs market "supports wages", the status quo should remain.
Which mortgage should you choose?
There are two main mortgage products: fixed rates and trackers.
Fixed-rate borrowers pay a set amount each month for a defined period, which can make it easier to budget and means your payments remain steady even if interest rates rise, said Money.co.uk.
This may sound attractive when rates are low, but "think carefully before committing for too long as some fixed-rate mortgages may have an early repayment charge", the financial website said. Plus, if interest rates go down during the fixed-rate period, your payments won't, the website added.
A tracker mortgage usually follows the BoE's base rate, and "huge numbers" of people have been on these mortgages "hoping for fixed deals to come down" before they secure their loans, said The Telegraph.
However, there is always the risk that rates will rise even higher, "leaving you gambling if you don't fix, because then you will be at the mercy of a higher tracker, therefore higher mortgage repayments", warned Online Mortgage Advisor.
How to boost your chances of getting your mortgage approved
Lenders will typically use an income multiple of 4 to 4.5 times the salary per person when assessing a mortgage application, sometimes rising to 5 or 5.5 times for higher earners, said The Times Money Mentor, but you will need to pass tough affordability tests.
This involves examining your income and outgoings. So "the more money you spend each month, the less you might be able to borrow", the website said.
You can boost your chances of getting a mortgage by checking your credit report – a record of all your debts such as loans and credit cards and how good you are at making repayments.
These reports are compiled by providers such as Experian, Equifax and TransUnion and calculate a credit score based on the debts you have and your repayment history as well as whether you have ever been made bankrupt or received county court judgments.
The report gives a lender an idea of whether you are a responsible, reliable borrower and likely to repay the debt. "Usually, a higher score means you’re seen as lower risk," said Experian.
You can improve your creditworthiness by making payments on loans, credit cards and bills on time and by getting on the electoral register so lenders can verify who you are, said Equifax.
Be careful, though, as making lots of applications may suggest to lenders that you are reliant on credit, so if you plan on applying for a mortgage, "it might be helpful to be selective about what other loan applications you make", Equifax added.
In recent months, things have been looking up for first-time buyers, who "are out in force" and purchasing 33% of homes so far this year, an "all-time high", said This is Money. This is a "sharp increase" compared to 29% in 2023.
When it comes to the perfect time to buy a home, "it's unlikely you'd time the market perfectly" to secure both low house prices and a low mortgage rate, said The Times Money Mentor. Instead, prospective buyers should think about their "financial and personal situation holistically and do some scenario planning".
However, in some cases, sellers "are taking discounts of up to 5% or more" on the price of a home, said MoneyWeek, as they understand "buyers continue to struggle with higher mortgage rates". Bearing this in mind, this is "good news" for those hoping to "secure a decent deal on a property".
How to find support if you are struggling to pay your mortgage
As mortgage rates are much higher than they have been in a while, many people who "had become accustomed to ultra-low interest rates" have been struggling, said This is Money. The website cited recent BoE data which showed arrears rose to £20.3 billion in the three months to December 2023, 50.3% higher than a year earlier.
While arrears "might sound like a scary term you'd rather not think about", it is important to tackle the problem head-on as it "won't just magic itself away", added MoneySavingExpert.
The first best step is to contact one's mortgage lender as an "urgent priority", as missing a mortgage payment without notifying a lender risks "starting the clock towards repossession", the financial website added.
Support available may include temporary payment arrangements, lengthening the term of your mortgage, or switching temporarily to interest-only repayments.
You can also get free housing advice from Shelter and support on managing debts from charities such as National Debtline and StepChange,added MoneyHelper.
Benefit claimants, such as those on Universal Credit, may be able to get help with some of their monthly repayments through the government's Support for Mortgage Interest (SMI) scheme.
However, it may also be useful to reassess finances, for example, by undertaking a budget or checking if you are entitled to any benefits. These are "other ways to ease the financial pressure", said MoneySavingExpert, and worth exploring even if lender help is sufficient.
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Marc Shoffman is an NCTJ-qualified award-winning freelance journalist, specialising in business, property and personal finance. He has a BA in multimedia journalism from Bournemouth University and a master’s in financial journalism from City University, London. His career began at FT Business trade publication Financial Adviser, during the 2008 banking crash. In 2013, he moved to MailOnline’s personal finance section This is Money, where he covered topics ranging from mortgages and pensions to investments and even a bit of Bitcoin. Since going freelance in 2016, his work has appeared in MoneyWeek, The Times, The Mail on Sunday and on the i news site.
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