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UK mortgage rate forecast for March 2024

There is concern mortgage rates could continue to rise in March, amid expectations that the base rate of interest may take longer to fall. 

At the end of last year, financial markets were predicting the Bank of England could start lowering the base rate as soon as March. However, the earliest that the first cut is now expected to arrive is in June and some suggest it could come as late as September.   

Fixed mortgage rates have been rising

Unsurprisingly, mortgage lenders have had to react. The mortgage rate cuts that were coming thick and fast in January have ground to a halt. Throughout February, many lenders increased rates.

As a result, Rightmove data shows the average rate on two-year fixed-rate mortgages had climbed to 5.08% by the 21 February, up from 4.99% at the beginning of the month. The average five-year fixed mortgage rate had also increased, to 4.72% from 4.66%. 

The consolation for borrowers is that both figures remain notably lower than where they started the year. Showing how significant the cuts throughout January were, the average two-year fixed mortgage was 5.43% on 3 January, while typical five-year rates were at 5.02%. 

“Mortgages are still reasonably priced even with the rate hikes we have seen over the last few weeks,” said Aaron Strutt, Product and Communications Director at mortgage broker Trinity Financial, in an email to NerdWallet. “Two-year fixes start at 4.38%, and the lowest five-year fix is just over 4.1%.” 

Strutt also offered a useful tip for those with a mortgage who would be open to remortgaging with the same lender. Many lenders don’t advertise their existing customer rates. “While virtually all sub-4% fixes have gone now, there is a chance some may still be available to existing borrowers,” he added. 

First base rate cut forecast to come later  

The cause for optimism over the longer term is that the next change in the base rate is still expected to be down. However, with inflation unexpectedly holding steady in January, and wage growth slowing by less than predicted, some experts are suggesting that the first reduction will come later in 2024 than had been anticipated.

Given the data to hand, it came as no surprise when the base rate was left on hold at 5.25% at the beginning of February, where it has been since last August. 

At the end of last year, financial markets were predicting the base rate could start falling as early as March, followed by multiple cuts during the rest of the year. This forecast would have likely been central to many lenders’ thinking as a mortgage rate war ensued during January. 

The next base rate decision will be revealed on 21 March, but a cut seems unlikely. Following the February announcement, the Bank’s governor, Andrew Bailey, made clear a reduction would only be forthcoming when there was more evidence that inflation would fall back to its 2% target and remain there. The minutes of the rate-setting meeting noted that inflation could temporarily hit that target in the second quarter of the year, but also included projections that it will increase again in the second half of the year. The potential for events in the Middle East and the Red Sea to put upward pressure on prices were also flagged as a “material risk”.  

As a result, many expert commentators now believe the earliest a rate cut could be seen is in June. Others are predicting a longer delay and a wait until August or even September.   

Mortgage rate fluctuations predicted 

Last month’s forecast that the pace of mortgage rate cuts could slow has become a reality. Unfortunately for those looking for a mortgage, instead of just slowing, the reductions have mainly turned into rate hikes, in the short term at least. 

While lenders were actively competing for the attention of borrowers in January, some mortgage brokers have suggested that the price war may have been fought too keenly. Ultimately this may have left lenders little option other than to increase rates now in case the cost of funding rises too much. 

That said, not every rate change of late has been an increase – towards the end of February, one major lender did lower some of its fixed-rate mortgages

Monitoring the market for the best deals remains key, as does seeking mortgage advice if you’re in any way unsure. Given that the base rate is expected to fall, there is also still hope that mortgage rates will fall across 2024 as a whole. 

“The mortgage market is moving very quickly and there are lots of rate changes,” said Strutt. “We are likely to see fixed mortgage pricing fluctuate this year as the cost of funding changes. There is still an expectation rates will be lower over the near term, but clearly, there are no guarantees.” 

Image source: Getty Images

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