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Are mortgage rates likely to go up or down in 2024?

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Written by  Joe Minihane
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Reviewed by  Kim Staples
5 min read
Updated: 01 Nov 2023

Whether mortgage rates will go up or down in 2024 depends on a few things. While the UK economy remains on an unstable footing, there are signs that the wider picture is beginning to settle. Read on and we’ll explain how this may affect mortgage interest rates and what that means for you in 2024.

What factors affect interest rates?

Interest rates rise and fall depending on a number of different factors. Eight times a year, the Bank of England’s Monetary Policy Committee (MPC) meets to discuss whether interest rates should rise, fall or stay the same. The Bank of England and the MPC are independent from the government. These rates then feed into the mortgage market, with lenders varying the rates they offer based on the MPC’s decision.

At the moment, the key factor driving interest rate changes is inflation. Inflation has run higher than the government set target of 2% for many years, rising as high as 11% in October 2021, and standing at just below 7% in August 2023. By raising interest rates when inflation is high, the Bank of England MPC aims to lower demand in the economy, making borrowing (including mortgages) and buying products more expensive in the process. In doing so, inflation should in theory come down.

Once inflation comes down and the economy shows signs of growth, then interest rates should stabilise and eventually come down. With steady growth, the MPC will feel more comfortable with a lower rate, as businesses will be willing to invest in infrastructure and housing, creating more jobs and a healthier tax base for the government.

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What have interest rates done in 2023?

Interest rates have risen to 5.25% in 2023, the highest they have been since the 2008 financial crash. At the start of 2023, rates stood at 3.5%, up 3.25% since the beginning of 2022. During the Covid pandemic, rates were lowered to a historic low of 0.1% in a bid to keep the economy afloat.

The rapid rise has seen mortgage lenders increase rates as a result, with two and five year deals reaching highs of over 6% before falling back slightly. This has meant that those on fixed term mortgages coming to the end of their deal have had to move to mortgage deals that are much more expensive than their previous plan. Meanwhile, those on variable rate mortgages have seen their monthly payments rise throughout 2022 and 2023.

The Bank of England is forecast to push rates up to 5.5% by the end of 2023. Rates are likely to stay at around 5% as the bank aims to bring inflation down to its target of 2% by early 2025.

Why would interest rates go up?

Interest rates can go up for a number of reasons. Inflation is the primary driver, and this can be pushed higher thanks to external factors beyond government control.

In recent years, inflation has increased due to the war in Ukraine driving up the price of oil and crops. This has in turn made shipping such goods more expensive, with prices being passed on from businesses to consumers. It has seen everything from groceries to petrol soar in price.

Such high inflation can be tempered by higher interest rates, which makes goods more expensive, dampening demand and forcing suppliers to cut prices, so that good then become cheaper.

How do higher interest rates affect the housing market?

Mortgages and mortgage rates always go up when the Bank of England base rate rises. Often, the rates lenders charge are higher in order to cover their costs.

When mortgages become more expensive, it means that the housing market theoretically slows down. That’s because monthly repayments for mortgages are more expensive, especially compared to a few years ago, when some two year fixed mortgages were offered on deals below 1%. That makes it harder for first time buyers to find an affordable deal, even more so because inflation has pushed house prices up and made the need for even bigger deposits greater.

Remortgaging also becomes more expensive, as does moving home, as homeowners have to find extra money for monthly mortgage payments.

The end result is a slower housing market with prices, in theory, coming down. The ideal situation is that this then makes it more affordable for people to move, with interest rates falling in turn.

The balance for policy makers is to ease house prices without making it so expensive to borrow that it provokes a crash in the housing market, which could be devastating for millions of homeowners and potential buyers.

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