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Mortgages rates under 4% next summer?

Journalist: Callum Mason, i

ended 27. October 2023

The Bank of England base rate is not expected to fall until next summer according to most forecasters, however, in recent weeks, mortgage rates have continued to drop.

Even if the rate doesn't fall between now and next summer, will we continue to see rates drop during that period - as long of course - as there is no major upside shock to inflation? Particularly as banks and lenders are struggling to attract customers with rates as high as they are.

Could we see rates of sub 4% become common for 5-year fixes at standard LTV (75%) by then, on current trajectories?

12 responses from the Newspage community

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Editor
Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
There is a real possibility that we could see a sub-4% 5-year fixed rate by summer 2024. No one expected the mortgage price war that is becoming a slow race to the bottom, and aside from interest rates, lending criteria is the only other retail lever that lenders can utilise. Expect both downward pricing and improved lending criteria over the next few months, as mortgage lenders attempt to find the tipping point that restores market confidence.
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Simon Bridgland
Director at Charwin Private Clients
Anything is possible. If lenders are needing to lend and compete for a decreasing pool of mortgagors, then rates will no doubt reduce. I don’t know that we’ll see sub 4% by then but I think we will definitely see more product innovation from lenders. We are already seeing higher loan to income multiple starting to be offered, lower rates but higher fees as well. Perhaps, with base rate reductions being on the horizon by then, you may see old favourites like trackers and even capped rates being banded about.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
It will be a long time before we see rates sub 4% again that do not have large product fees to offset the rate. Lenders reducing rates recently has been an over-eager attempt to claw back from lending volume and market share. However lenders are doing this at the expense of their margins, so will not be a long-term strategy. With the Bank of England likely to not reduce the base rate until late 2024 at the earliest, I think rates may fluctuate and reduce slightly but we are yet to see a 2-year fixed below 5% let alone 4%.
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Elliott Culley
Director at Switch Mortgage Finance
In the current market it is very difficult to predict where the market will be this time next year. Forecasts seem to change very quickly and I can remember when we had sub 4 rates earlier this year before everything changed again. If the forecasts do turn out to be correct we could be on this trajectory, but at the moment this is cautious optimism.
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Kylie-Ann Gatecliffe
Director at KAG Financial
Whilst lenders have been aggressive with rate reductions - we aren't seeing this breathe enough life back into the housing market. Buyers need more of an incentive to get back out house hunting. Rates have improved which is great news but we will need to see further reductions to really give the market a boost. The way reductions are coming through weekly now I can forsee them dropping to the 4% range, which will hopefully ensure a busy Summer.
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Richard Campo
Founder at Rose Capital Partners
I think the chances of seeing 5 year fixed rates that start with a 3 next year are extremely slim.
As of 9am this morning, 5 year money (SONIA) was at 4.542%, so on the assumption lenders want to make a profit, I can't see a case for seeing sub 4% 5 year fixed rates any time soon.
I think any 5 year fixed rate starting with a 4 starts to look good value in the context of the UK Base rate currently being 5.25%, and only likely to get back to around 4.5% over that period.
All that said, with so many variables in play at the moment, locking in for 5 years is still a brave call. Who knows what the future holds, as who would have thought the last 5 years looked as they did? So who is to say the next 5 will play out as expected... I feel going shorter-term, variable and ideally penalty-free on your product choice may be the way to go for now
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Gary Bush
Financial Adviser at MortgageShop.com
I can remember earlier in the year discussing that it was "possible" that 5-year fixes could again have a 3 in front of them by August 2023, and then the spiral of factors killed off this dream. So we are all a little cautious about making predictions at the moment as we now have yet another war to analyse around, Palestine/Israel, and inflation is proving sticky based on the cost of housing inflation category having no signs of decreasing anytime soon. It's a kind of self-perpetuating problem and a worrying one. We'd "hope" to see small and stable decreases in the all-important inflation figure in the next 6 months and that being the case it's clear that the strength of the UK's aggressive mortgage market rate war could easily see a flurry of sub 4% fixed rates.
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
With so many other factors in play, it sounds optimistic, that said, it would be a huge relief to existing mortgage clients to be able to discuss sub-4 % lending with many coming from such low fixed rates.
It will take several factors all aligning, but most advisers are eternal optimists, so let's keep our fingers crossed.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
Dreams of 5-year fixes with a '3' at the front may have fizzled, but don't rule out sub-4% rates just yet. With the mortgage market in a fierce rate war and inflation a wild card, the next six months could surprise us. While locking in for 5 years is a gamble, the market's unpredictability might just tip the scales. Keep an eye out, your options open and ignore charlatans who claim to own a crystal ball.
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Elliot Cotterell
Director at Windsor Hill Mortgages and Cotterell & Cotterell Commercial Finance
The market is indicating zero change until Spring/ Summer 2024 with Swap Rates flat up until that time horizon. Further out, the Yield Curve is starting to flatten and on the brink of reverting back from the inversion we have seen in recent years. Thus indicating a normalisation in forward rates. This is in part due to the long end of the curve seeing a sharp sell-off and at the front end the recent BOE pause in conjunction with inflation starting to come into check are all contributing factors. Given all of this there is a margin gap appearing for the lenders to take advantage of and as a result they are beginning to reduce rates. We already have at least one product on the market in the mid 3% range but this comes with a hefty product fee to offset the headline. In our view it’s a bit it’s a bit of a stretch to expect sub 4% products to be a common occurrence but we are certainly heading in that direction.
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Gareth Davies
Director at South Coast Mortgage Services
You have to be very brave, or naive to accurately predict rates for next year. If the last 3yrs or so have taught us anything, it's that nothing is guaranteed. The optimist in me hopes things are better, but the realist in me is well and truly sitting on the fence and keeping quiet.
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Austyn Johnson
Founder at Mortgages For Actors
The last couple of years have been a special time, we are now back to the norm. Unless our economy gets hit hard, we are unlikely to see sub 2% rates for a while. I think everyone needs to remember why the BoE dropped the rate so dramatically. Thats sorted now and its back to business again. I do hope we get some better rates next year though, it would help all areas of the market.