Mortgage rates won’t dip below four per cent this year, experts say

Mortgage rates are unlikely to dip below four per cent before the end of this year, industry experts told City A.M.

As inflation has come in cooler than expected, markets are predicting that the Bank of England might begin cutting rates next summer. This in turn has brought down mortgage rates, which are tied to future expectations of where interest rates will go.

“The outlook for mortgage rates for the coming year is optimistic,” Ross Murphy, senior adviser at Capricorn Financial Consultancy, said. “Swap rates are coming down, and we are increasingly seeing rates slide into the region of 4-4.5 per cent as a result.”

Nationwide this month launched the first two-year fixed mortgage below five per cent and two-year deal below 4.5 per cent since June.

The average deals remain much higher, however. According to data from Moneyfacts, the average two-year deal is now 6.08 per cent while a typical five-year deal is 5.68 per cent. But this is still down substantially from their summer highs when rates hit their highest level in 15 years.

However, further progress on mortgage rates this year may be slower as lenders struggle with weak demand.

Iwona Hovenko, a real estate analyst at Bloomberg Intelligence, said: “We do not expect mortgage rates to fall below four per cent this year though, albeit it could be possible next – especially in the second half of 2024,” she added.

Chris Sykes, technical director at Private Finance, argued that the prospect of a sub-four per cent deal by the end of this year was “no more than a dream”.

“We are likely approaching the end of rate reductions if anything, with margins getting smaller and smaller and lenders cutting now as a play for market share or to get towards lending targets for the year that have been missed,” he said.

But Sykes suggested that larger lenders might be able to price products as low as three to 3.5 per cent by the end of next year.