When will interest rates go down?

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Published on 19 August 2023

In what has become a more complex world of the UK mortgage market, there is a key influence that has immense power over people’s ability to own their own home: interest rates. The Bank of England’s base rate adjustments have a ripple effect on the cost of mortgages. This impacts both current homeowners and those prospective buyers. In this blog we’ll take a look at the complex relationship between interest rates and mortgages providing you with the details you need to help you understand the complexities. And how despite the fact that the Bank of England Base Rate continues to increase, interest rates have started to go down!

The Base Rate and beyond

Many people think that the Bank of England’s Base Rate is the driving force behind interest rates nationwide. But mortgage interest rates and in particular fixed rates, are much more complex and consider a number of wider economic and longer-term factors. And it’s not just mortgage interest rates that are impacted by changes in the Base Rate. Banks and building societies link their savings and other lending rates (like credit cards and personal loans) to the Bank of England base rate. When this rate changes, mortgage lenders tend to adjust the interest rates associated with their various mortgage products. It’s common that most lenders will increase their standard variable rate by the same amount as any increase in the base rate. And products known as tracker rate mortgages “Track” the Bank of England base rate. But it has been the change in fixed-rate products that has been most dramatic in recent months. These seemingly subtle shifts in the base rate set off a series of changes that can affect the entire mortgage landscape.

Impact on existing mortgages: adapting to change

For those who already own a home, a change in the base rate can directly impact your monthly mortgage payments. The extent of this impact varies depending on the type of mortgage that you have. If your mortgage is either a tracker or variable rate mortgage, then brace yourself for potential adjustments when the Bank of England base rate changes. These types of mortgages are linked to the base rate meaning that as it shifts, so does the interest rate on your mortgage. As a result, your mortgage payments will increase which will mean you need to take a closer look at your monthly outgoings. And with further increases predicted to the Base Rate, homeowners on these types of products can expect to see further increases.

A fixed-rate mortgage acts as a stabiliser in the fluctuating interest rate market. Opting for a fixed rate deal means that regardless of how the base rate increases or decreases your interest rate remains constant for the agreed term of the fixed rates. This predictability shields you from sudden financial changes and allows you to be certain of what your monthly payment will be. Following the recent increase in the Base Rate, we have actually started to see fixed rates start to go down. As previously mentioned, this is because fixed rates are more influenced by another factor known as “swap rates”. These are the interest rates that financial institutions use when they lend to each other. They are complex and are influenced by a wide range of economic factors. There is no need for homeowners to understand these – but the change in swap rates has meant that fixed interest rates have gone down although they continue to be much higher than they were just 12-18 months ago. So if you are one of the 1.5 million homeowners who have a fixed deal ending this year, when it is time to remortgage it’s likely that your monthly mortgage payment will increase.

Taking Control

The Bank of England base rate has recently hit a 15-year high and predictions suggest there are further increases to come. The dynamic nature of interest rates calls for a proactive assessment of your mortgage and borrowing needs. As the rate landscape changes now is an opportune moment to think about the best way forward.

  1. Exploring fixed rate stability. If you were on your lender’s standard variable rate or you’re on a tracker mortgage this prospect of further interest rate rises may be a reason to consider a fixed rate alternative. This offers stability and predictability in a market that is currently known for its changes.
  2. Balancing stability and security. On the other hand, if you’ve already taken the fixed rate safety net, pause before altering your course of direction. While fixed-rate mortgages provide stability, they come with things like early redemption charges. They may limit your flexibility to benefit from potential rate decreases. Like many financial decisions, it’s a careful balance between stability and opportunity.
  3. Forecasting your financial future. It’s important to think about your long-term financial aspirations and how things in your life may change. Major life events, career changes, additions to the family or the need for major home renovations, will influence your mortgage strategy. So, it’s important you align your mortgage decision with your long-term future vision.
  4. Unveiling alternative options. Beyond the traditional options, there are alternatives that might be worth looking at. For instance, offset mortgages will use your savings, meaning lower interest payments. And lifetime tracker mortgages can offer a middle ground between stability and flexibility.
  5. Expert guidance. The realm of mortgages isn’t one you should navigate on your own particularly given such dramatic changes in what had been a consistent market for more than a decade. Many people are not used to having to think about the risk of rates going up and down. Our experienced team at 177 mortgages is equipped with a real understanding of the diverse range of mortgage options.

In what has become a volatile market, your mortgage isn’t just a financial commitment, it’s the centrepiece of your broader financial puzzle. Until interest rates go down, changes are likely to prompt the need for a look at not just your mortgage but your entire financial plan. For example, the use of savings to either offset or reduce your mortgage borrowing. Or the need to reassess when you hope to pay off your mortgage, and extending the term of your loan to make your monthly payments more affordable.

Guiding Aspiring Homebuyers

For many the biggest challenge in making that first step on the homeowner ladder was the difficulty in saving for a deposit. However, homeowners entering the market may find that the prospect of changing interest rates and with rates at a 15 year high are now the biggest concern. And with the recent increases to the cost of living many lenders have been adjusting their affordability criteria. Fluctuations in interest rates and reduced affordability will obviously affect borrowing costs. A factor that will significantly influence financial decisions for those thinking about entering the market. This is where speaking to an expert can really pay off. A good mortgage broker will be able to offer guidance and advice tailored to your current financial situation. By understanding your tolerance risk to rate increases, your financial aspirations and with their knowledge of the current market, they’ll help you to select a mortgage that meets your vision of owning your first home.

Navigating the Market – Practical steps.

In the face of a dynamic mortgage landscape, how can you navigate the world of interest rates effectively? Here are our practical steps to help you:

  1. Stay formed: Keep an eye out for base rate announcements. Our experts understand these shifts and can guide you through their impact on your mortgage.
  2. Review your mortgage regularly: For existing homeowners, a regular mortgage review can assess if rate changes present an opportunity to reposition your finances. It may even be worth paying a fee to exit a mortgage early if interest rates go down.
  3. Expert consultation. For potential homeowners seeking out expert advice is invaluable. We also have tools on our website like a Mortgage Calculator that can help you understand how interest rate changes will impact your monthly repayments. And our expert team can help you understand how this will influence your borrowing capacity.
  4. Consider your future. It’s important to take your long-term financial goals into account. If you have a major life event on the horizon, you should factor these things into your mortgage decision.
  5. Explore mortgage options. Don’t just settle for a mortgage particularly when it comes to the time to remortgage. Explore the range of options available from fixed rate to tracker mortgages, each option offers its unique advantages.

As this unpredictable journey of interest rates continues – They will continue to shape the landscape of homeownership. While they can go up or down our dedication to your financial success reminds constant. As you make mortgage decisions alongside these changes remember that partnering with a mortgage broker like 177 Mortgages will help you understand the dynamics of the market and the decisions you’re making. Your mortgage is the cornerstone of your financial path so it’s important that is built on solid ground. Get in touch to find out how we can help you in your homeowner journey.

177 Mortgages and 177 Protect are open 7 days a week. We’re always happy to talk through your mortgage, specialist finance and protection needs in more detail. If you’d like to book an appointment or simply find out more information, please get in touch.

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