Mortgage Rates on the Downward Trajectory: A Boost for First-Time Buyers and Home Movers

With economists forecasting a potential cut in the Bank of England base rate from its 16-year peak of 5.25% at the upcoming August vote, mortgage rates from lenders seem to be on a downward trajectory. This trend is expected to continue, bringing relief to homeowners and prospective buyers alike.

Mortgage rates are falling, making it a great time to get on the property ladder.

First Direct has reduced the mortgage rates on some of its products, following the decision by other major lenders to reduce rates last week. The bank has made cuts across a variety of fixed repayment mortgages, including two, three, and five-year terms, aimed at both first-time buyers and those moving house. One notable reduction is on their two-year fixed-rate deal for borrowers with a 15% deposit, now coming in at 4.99%, a drop from the previous 5.16%.

“We’re pleased to be reducing our rates across our range of two, three and five-year fixed mortgages, across LTVs from 60% to 95%. We see the highest demand for those products and today’s changes will help people making their first steps on the ladder, or those moving into their next home.” - Liam O’Hara, head of mortgages at First Direct

The drive to boost business and increase summer sales could be prompting lenders to adjust their rates. Recent indications suggest that the selection of mortgage products is on the upswing. Moneyfacts, a financial information website, reported this week that it had identified 361 mortgage products available for individuals with 5% deposits at the beginning of July, marking the highest total since May 2022.

The North is seeing a surge in mortgage searches, with cities like Leeds and Manchester leading the way.

In other news, Twenty7tec has reported a surge in purchase mortgage searches in six major northern cities: Leeds, Bradford, Newcastle, Liverpool, Manchester, and Sheffield. The latest data reveals that these cities now account for 10.99% of all purchase mortgage search activity, marking a 67.1% increase from April last year.

“When we look at purchase searches and compare them to this time last year, we can see just how much the demand for houses in the northern market has grown. Of all the purchase searches taking place, there’s a higher proportion for the northern six cities than there’s ever been since we started reporting 10 years ago.” - Nathan Reilly, director of customer relationships & operations at Twenty7tec

Despite fluctuating interest rates, mortgage brokers express ‘optimism’ for a property market bounce-back in the months to come. With inflation falling closer to its two percent target and potential interest rate cuts in sight, a mortgage broker has expressed cautious optimism that things could finally be looking a bit more positive for the housing market.

“By the end of 2024, I anticipate the Bank of England will implement two rate cuts of 0.25 percent each, with a possibility for a third cut, reflecting an optimistic outlook for the UK economy.” - Nicholas Mendes, mortgage technical manager at independent mortgage brokers John Charcol

The expected cuts in the Bank of England’s Bank Rate are already reflected in current fixed-rate mortgage pricing. However, Mr Mendes noted that as the Bank Rate decreases, the market is likely to gain more confidence in the prospect of further reductions, potentially leading to additional cuts in fixed mortgage rates by around 0.5 percent this year.

Mortgage brokers are optimistic about the future of the housing market.

What will happen to mortgage rates in the second half of 2024? According to Mr Mendes, the spread between two-year and five-year fixed mortgage rates will narrow, with headline five-year fixes potentially falling to 3.75 percent and two-year fixes to four percent by the end of 2024.

In 2025, Mr Mendes predicts that mortgage rates will fall further, likely by around 0.5 percent. This continued decline will be influenced by the ongoing reduction in the Bank of England’s Bank Rate and the stabilisation of economic conditions.

As confidence in the economy grows and inflation remains under control, lenders will have more room to lower rates, resulting in even more competitive mortgage products. This downward trend in mortgage rates will not only make homeownership more accessible but also stimulate the housing market by encouraging both purchases and refinancing. Consequently, we can anticipate increased activity in the housing sector.