‘I’m a property expert – this is why mortgage interest rates are dropping slowly'

In positive news for mortgage borrowers, the Bank of England finally has lowered the central interest rate for the first time in four years.

Millions of homeowners are due to come off their cheaper fixed-rate mortgage deals in the coming months, leaving many questioning what type of deal to go for next.

With a 0.25 percent cut to five percent, the Base Rate is still high and the impact won’t be felt “widely”, an expert has said. However, there are deals people may want to opt for to put them in a more “favourable” position for the years ahead.

We asked Andrew Boast, a property expert at SAM Conveyancing the current mortgage market trends, his expectations for rates over the next few months, and what length deals people should look into based on current forecasts.

Mr Boast told Express.co.uk: “The Bank of England’s recent decision to cut the Base Rate has caused an immediate sense of relief for many borrowers, who have struggled with the high costs associated with the 5.25% rate.

“Though only a 0.25 percent reduction, this lower Base Rate will likely result in reduced monthly mortgage payments for those on tracker and variable rate mortgages, freeing up a little bit of extra cash every month.”

However, while the Base Rate reduction is “well overdue”, Mr Boast said: “The impact won’t be felt widely. Out of over 8.4 million current residential mortgages, only 1.4 million are on variable or tracker mortgages, with the vast majority of borrowers on fixed-rate mortgages.”

Plus, he added: “With rumours of a recession and general economic uncertainty, lenders are still cautious and mortgage rates are still relatively high, falling between 5.35 percent and 8.65 percent across all lenders in the UK.

“Banks and building societies are, understandably, being cautious with their pricing, and while some new deals are emerging with slightly better rates, it’s not a wholesale reduction across the market.

What can we expect from mortgage rates for the rest of the year?

SWAP rates, which influence fixed mortgage rates, have risen quite sharply in the past year and a half.

Mr Boast explained: “This is because they tend to reflect currency market expectations of where interest rates are headed.

“Given the current economic environment and rumours of a recession, there has been a steady rise since January 2023, with SONIA, the interest rate benchmark used by the BoE increasing from a rate of 3.4269 on January 3, 2023, peaking to 5.2001 on May 3, 2024.

“In fact, SONIA has only recently seen a slight decline of 4.95 after being stuck at 5.2 since May.”

While this is stable, this rate is on the higher side compared to historical norms, with rates below one from February 2009 until June 2022, fixed-rate mortgage deals are “not as attractive” as some might hope following the Base Rate cut.

Mr Boast noted: “This is likely down to lenders factoring in potential future rate hikes or the proposed economic turbulence, which is keeping those fixed rates from dropping significantly.”

Looking ahead, Mr Boast said: “The mortgage market is likely to remain in a state of flux as we grapple with a potential recession and other potential economic turbulence. I expect some stability in the short term as we’ve already seen, with rates staying fairly consistent as lenders and borrowers alike navigate terms with the reduced Base Rate.”

Mr Boast suggested that, unless a recession is officially announced, we’ll see more modest fluctuations as opposed to the dramatic changes seen in the past few years, meaning “fewer surprises” for borrowers.

He continued: “Fixed rates might also inch downwards if SWAP rates stabilise further, but this will likely be gradual as opposed to one large ‘drop,’ meaning borrowers should be sensible with their finances and not bank on a good deal.

“I also think that variable rates will likely stay low as long as the Base Rate remains at five percent or below, though I urge borrowers, especially potential homeowners, to pay attention to the current financial market and prepare themselves to look for the best deals.”

Although it’s more likely the market will see minor adjustments rather than substantial rate drops, Mr Boast said borrowers could still make “some decent savings” if they shop around.

Any tips for people coming off a fixed rate?

Mr Boast suggested that the remortgage market will feel the biggest impact.

For those who recently finished a fixed-rate deal or are nearing the end of their term and have been waiting for a base rate drop, Mr Boast said now might be a good time to secure a new fixed rate, as further rate decreases are unlikely this year.

However, he noted: “We expect the Base Rate to return to a goal of 3.5 percent over the next few years, so a shorter, two-year fixed rate may be preferable, allowing you to switch again when rates are hopefully lower.”

For those coming off a fixed rate, Mr Boast said: “You need to start exploring your options early. Offers are typically valid for six months, so you can get a new mortgage lined up well ahead of schedule.

“Given the current rate environment, you might find that sticking with a variable rate could offer short-term savings. But given the risk for fluctuations, those looking for a more consistent monthly payment might find it worth locking in a new fixed rate, even if it’s slightly higher than your previous deal.”

He added: “Consider overpaying on your mortgage if you can afford it. This can reduce your overall interest payments and provide a buffer against future rate increases, giving you some breathing space if your monthly payments end up higher than you expect.”