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  • Writer's pictureCharlotte Oakley

Interest Rates Falling - 2024 Predictions

In this blog we will be discussing the interest rate predictions for 2024 and whether or not they will be falling.

In August 2023, the Bank of England maintained the base interest rate at 5.25%, breaking a run of 14 consecutive increases. Despite this decision being upheld in the September, November, and December meetings, the combination of historically high mortgage rates and low savings interest rates, combined with a rapid decline in inflation, prompts the question of when interest rates will begin a downward trend.

Bank of England Governor Andrew Bailey remains cautious, stating that there is still a significant journey ahead to curb inflation. He emphasised a vigilant observation of data and the commitment to sustaining sufficiently high interest rates to ensure a return to the target of 2% inflation. Bailey conveyed this perspective in a letter to Chancellor Jeremy Hunt.

Despite the current stance, there is optimism that a shift is on the horizon. Money markets are anticipating a substantial reduction of the interest rate by one percentage point, reaching 4.25% by the close of 2024.

For individuals with fixed-rate mortgage deals coming to an end or those on standard variable-rate or tracker mortgages, the anticipation of lower borrowing costs sparks hope for potential savings.

Why have interest rates been rising?

The Bank of England holds the responsibility of maintaining the annual Consumer Price Index (CPI) inflation rate, a gauge of the escalating cost of living, approximately at 2%.

Over the past two years, the Bank's Monetary Policy Committee (MPC) has been engaged in a sustained effort to rein in surging inflation. This involved a series of 14 consecutive base rate hikes, culminating in a 15-year peak of 5.25% in September.

The strategy behind raising the cost of borrowing in this manner is to curtail spending, subsequently tempering the upward pressure on prices and mitigating inflation. As the CPI persists above the Bank's 2% target, there are signs of success, with inflation currently at 3.9%, a decline from its 41-year high of 11.1% in October 2022. This suggests that the decisions made by the MPC are yielding the desired effects.

When can we expect a decline in interest rates?

The consensus among most analysts is that interest rates have most likely reached their peak and are poised to decrease soon. Capital Economics, a research firm, foresees the Bank lowering the base interest rate to 3% by the conclusion of 2025. Berenberg Bank's projections suggest a decline to 4% by the end of 2024.

Despite these forecasts, it's crucial to acknowledge that the Monetary Policy Committee (MPC) recently voted 6-3 to maintain the base interest rate at 5.25%. Of the remaining three votes, all favoured an increase to 5.5%. This consecutive split vote suggests that a decline in rates may not be imminent.

Laith Khalaf, Head of Investment at AJ Bell, notes, "The split vote from the Bank’s interest rate committee puts the cat squarely amongst the pigeons." He emphasises that the market had assumed the interest rate hiking cycle was completed, but the divided committee implies a lingering case for higher rates. This uncertainty may act as a constraint on the recent downward trend in short-term interest rates, potentially influencing upward pressure on mortgage market pricing.

Bank Governor Andrew Bailey has consistently communicated his stance that rates will remain stable for some time, citing concerns that markets are underestimating the risk of UK inflation. The latest Monetary Policy report indicates an expectation of rates hovering around 5.25% until the third quarter of 2024, gradually declining to 4.25% by the close of 2026. Based on this outlook, it appears that a considerable amount of time may elapse before we witness a reduction in interest rates.

Interest rates falling | Wooden houses with an arrow pointing down

Why have there been recent declines in mortgage rates?

The drop in mortgage rates can be attributed to favourable inflation data and the perception that interest rates have reached their peak, especially after the Bank of England (BoE) maintained the base rate for the third consecutive time in December.

The prospect of a potential cut in interest rates from March 2024, as suggested by some experts, brings good news for homeowners. Additionally, the decline in swap rates, reflecting market expectations for future interest rates, holds significance as these rates are instrumental in determining fixed-rate mortgage deals.

Furthermore, given the challenges in the housing market caused by elevated mortgage rates, lenders are motivated to reduce their rates to stimulate activity.

Presently, the average two-year fixed mortgage rate for those with a 40% deposit is approximately 4.8%. Experts speculate that rates may drop to around 4% by the end of 2024.

Mortgage rate predictions 2024: will they go down? 

Predicting mortgage rates in 2024 is complex as they’re influenced by inflation, interest rates, and swap rates. While many experts anticipate a base rate cut in the coming year, this hinges on whether UK inflation continues its expected downward trajectory. November witnessed UK inflation falling to 3.9%, the lowest in over two years, with projections suggesting further declines in 2024, possibly reaching the BoE's 2% target earlier than anticipated.

Given the accelerated decline in inflation, there is a possibility that the BoE might initiate base rate cuts in 2024, potentially reaching 4% by the end of the following year, according to data from private bank Berenberg. These developments bode well for homeowners, particularly those with variable-rate mortgages directly influenced by the base rate.

For individuals with variable-rate mortgages, contemplating a switch to a fixed-rate deal might be prudent. Get in contact with Your Mortgage Room, a Brighton-based mortgage broker to see how we can help you.

However, it's crucial to note that forecasts come with inherent uncertainties, as multiple factors can alter the course of mortgage rates. Despite potential decreases, it's worth acknowledging that rates, even if lower, may still be comparatively high compared to historical lows.

Interest Rates Falling - Your Mortgage Room

Looking to navigate the evolving landscape of mortgage rates amidst the changing economic conditions? 

Your Mortgage Room, a trusted mortgage broker based in Brighton, is ready to assist you. 

As interest rates fluctuate and considerations about potential reductions emerge, our expert team will guide you through the mortgage market.

Whether you're exploring fixed-rate options, evaluating the impact of changing interest rates, or seeking the best deal, Your Mortgage Room will help you make an informed decision.

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