When will mortgage rates go down?

Bank of England forecasts warn nearly one million households could see a £500 a month hike on their mortgage payments. When will mortgage rates start to fall?

when will mortgages go down uk

Homeowners may have to face more mortgage pain in the future as fixed-rate deals expire and interest rates continue to rise. Image: Benjamin Elliott / Unsplash

Halifax and three other major lenders have announced they are cutting mortgage rates, a move seen as a potential sign the pain faced by homeowners may be easing.

Yet the Bank of England has increased the base rate of interest 14 consecutive times and it now sits at 5.25%. Coupled with the cost of living crisis, high interest rates are contributing to a ‘mortgage crunch’ for borrowers.

On top of having to contend with increased prices for food and utilities, those who cannot keep up with rising mortgage payments could face homelessness. This pressure on millions of household budgets could also play out at next year’s election, with housing costs having the potential to become a key issue.

Will mortgage rates go down? Here’s everything you need to know

Why are mortgages going up?

The UK’s rate of inflation currently sits at 7.9%. The Bank of England wants to get this down to 2% by 2025. This involves raising interest rates.

Think of interest rates as the cost of borrowing money and the reward for saving. Higher interest rates make it more lucrative to save and more expensive to borrow money, with the idea being this slows spending and stops prices rising so quickly –- ‘cooling down’ the economy.

As mortgages are a type of credit, they are affected by rising interest rates.

However, not all mortgages are affected. People who have a fixed-rate mortgage will be largely insulated from interest rate rises until the fixed rate comes to an end and a new one needs to be negotiated.

People on tracker mortgages are more susceptible to interest rate rises because they follow the base rates set by the Bank of England.

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After a drop in property sales as mortgage rates rose, the property market is showing signs of rebounding.

There were 94,690 property transactions in the UK in June, according to HMRC’s seasonally adjusted figures. That represented a 28% rise compared to May while also 9% down on June 2022.

There were 54,700 mortgages given the greenlight in the UK in June 2023 according to the Bank of England’s statistics. That figure is slightly up on the 51,100 approvals recorded in April but still far lower than a year ago and levels seen between 2018 and 2019.

How high will mortgage rates go in the UK?

It’s impossible to say how high interest rates may go without the aid of a crystal ball but the Bank of England has given some indication of how it expects things to progress in the future.

The central bank has targeted getting inflation down to 2% by the end of 2024 – but academics have warned it will not reach this target before 2028 “at the earliest”.

Stubborn inflation means interest rises could continue for a while yet. The Bank of England has warned interest rates will remain high for at least two more years.

Consecutive increases in the base rate have led some to predict even higher rates. Asset management company Schroders expects rates to peak at 6.5% by the end of the year.

The current average rate on a standard variable rate mortgage is 8.5%, according to Uswitch, while a two year fixed-rate 75% mortgage is currently averaging at 6.79%, as of 10 August.

How much will my mortgage go up?

Mortgage payments could rise by at least £500 a month, according to Bank of England forecasts.

The central bank’s financial stability report warned “some borrowers may struggle with their repayments” but said UK banks are “resilient and strong enough to support their customers”.

Households on tracker mortgages or renegotiating fixed rates will already have seen a rise in monthly payments.

The typical-sized mortgage has seen a £300 hike in monthly payments on average since September last year, debt charity StepChange said.

The Institute for Fiscal Studies’ (IFS) analysis said people in their 30s could see payments jump by £360 per month if fixed-rate mortgages remain at the 6% rate some lenders are currently offering, representing around 11% of disposable income on average.

The rising mortgage payments could wipe out 20% of disposable income for 1.4 million mortgage holders with half of those affected aged under 40.

Overall around 8.5 million mortgage holders will be spending at least a fifth of their income on mortgage payments if rates remain high. That’s a substantial increase when compared to the 5.1 million people who faced that level of financial burden in March 2022.

Tom Wernham, a research economist at IFS, said: “Many families bought homes – often with sizable mortgages – when interest rates were very low. As people’s fixed term offers come to an end they are going to be exposed to much higher interest rates. 

“For many, the increase in monthly repayments is going to come as a serious shock – on average it will be equivalent to seeing their disposable income fall by around 8.3%. Given the cost of living pressures people are already facing due to high food and energy price inflation, these significant increases in mortgage costs could not come at a worse time.”

Are mortgage rates coming down in 2023?

There are signs interest rates are beginning to fall for some mortgages. Halifax, HSBC, Nationwide, and TSB – four of the UK’s biggest mortgage lenders – have recently cut some mortgage rates.

Halifax is cutting rates on its five-year fixed deal from 6.1% to 5.39%. Nationwide has cut fixed rates by 0.55 percentage points, and TSB by 0.4 points.

Others are likely to follow suit, Chris Sykes, technical director at Private Finance, told the Guardian.

“More lenders are likely to follow this trend, and we may even see further rate reductions from those lenders who have already lowered rates,” he said.

This is a response to the slow-down in the housing market, rather than falling interest rates, say some experts, but could be a sign of things to come. If prices fall, interest rates may fall in response as the Bank of England grows nearer to its inflation target.

“Lenders are starting to realise the market is slowing down, and they need to improve pricing to attract more borrowers,” Aaron Strutt of Trinity Financial told the BBC.

But for those remortgaging or those moving to higher fixed rates, a small fall in already high rates will be cold comfort. As recently as December 2021, the base rate of interest was 0.1%, making borrowing extremely cheap. It now sits at 5.25% –- a stark contrast to the low borrowing costs enjoyed over the past decade.

With the mortgage crunch set to hit households as they renew, the issue could have a big impact on next year’s general election, warned Simon Pittaway, senior economist at the Resolution Foundation.

“Market expectations that interest rates are going to rise even higher, and stay higher for longer, are having a major effect on the mortgage market, with deals being pulled and replaced with new higher-rate mortgages,” said Pittaway.

“Of course, market expectations can be wrong, and rate rises may not turn out to be as bad as feared. But with three-fifths of Britain’s £15.8 billion mortgage hike still to be passed on to households, rising repayments will deal an ongoing living standards blow to millions of households in the run-in to the general election.”

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What support is available if you’re struggling to pay your mortgage?

Rising mortgage payments may not be something that every household can absorb, particularly with the wider cost of living crisis driving up other costs.

As mortgage rates have increased, so have calls for the government to introduce more support to help households who are struggling to keep up with payments.

However, prime minister Rishi Sunak has warned against giving mortgage-paying households targeted support so far.

“I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people,” Sunak told ITV’s Good Morning Britain.

“We’ve got a clear plan to do that, it is delivering, we need to stick to the plan. But there is also support available for people. We have the mortgage guarantee scheme for first-time buyers and we have the support for mortgage interest scheme which is there to help people as well.”

Chancellor Jeremy Hunt has also ruled out support but has set up a mortgage charter following a meeting with lenders to discuss how they can provide support to households struggling to pay.

All major lenders have agreed to offer help and guidance to customers without any impact on their credit file.

Customers who are up-to-date with payments will also be allowed to switch to a new mortgage deal at the end of their existing fixed-rate deal without another affordability check.

Customers will also be offered tailored support including extending their term, reducing their payments, switching to interest-only payments, temporary payment deferrals or part-interest-part repayment arrangements.

Borrowers will also be protected from repossession for one year after their first missed payment and customers approaching the end of a fixed-rate deal will have the chance to lock in a deal up to six months ahead of expiry.

Labour has set out its own solution to the crisis. The opposition party’s five-point plan includes allowing borrowers to temporarily switch to interest-only mortgage payments and lengthen the term of their mortgage.

Labour also suggested lenders reverse any support measures when a borrower requests and wait a minimum of six months before initiating repossession proceedings. The party also called on regulator the Financial Conduct Authority to issue guidance to reassure borrowers that these proposed changes will not affect their credit score.

Rachel Reeves, Labour’s shadow chancellor, said: “Our five-point plan to ease the Tory mortgage penalty offers practical help now, while our commitment to fiscal responsibility and growth will secure our economy for the future.  

“With food and energy prices so high, higher mortgages are the last thing families need.”

If you are struggling to pay your mortgage, the first thing you should do is contact your lender to discuss your options.

If you are receiving universal credit or other benefits, you may be able to get a Support for Mortgage Interest Loan to help you cover rising interest payments. This is from the Department for Work and Pensions (DWP) and you have to repay the loan when you sell the property.

The mortgage guarantee scheme sees the government offer lenders financial guarantees to cover losses in the event that someone is unable to pay their mortgage.

The scheme is currently set to run until the end of 2023, covering up to 95% mortgages on homes up to £600,000.

Additional support is available in Scotland through the Home Owners’ Support Fund. This is based on two schemes – the Mortgage to Shared Equity scheme will see the Scottish Government buy a stake in a property to reduce the loan while the Mortgage to Rent scheme allows a social landlord to buy a property and rent it back.

Around one in seven mortgage holders who seek help from StepChange are in arrears on their mortgage, the debt charity said.

Polling from the charity found around seven million UK adults – representing 45% of mortgage holders – have found it difficult to keep up with bills.

StepChange said 40% of mortgage holders are showing at least one sign of financial difficulty while one in 10 are estimated to be in problem debt.

Vikki Brownridge, chief executive of StepChange, said: “While our figures show that increased pressure is not yet bringing more homeowners to debt advice, the risk is there as people cut back on spending or turn to credit to keep up with essentials and the wider cost of living. The government and lenders must be attuned to this issue with millions of people due to experience eye-watering rises in their monthly mortgage payments.

“If you’re worried about meeting your mortgage payments, it’s never too soon to get support – speak to your lender about your options or seek free and impartial debt advice from a charity like StepChange. We have a dedicated free mortgage advice service, which is open to anyone, whether they are currently in problem debt or not.”

If you are struggling to pay, support from StepChange and other debt charities is available or you can call the National Debtline on 0808 808 4000 or contact Citizens Advice for advice.

Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.

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