INTEREST rates are likely to fall at the fastest pace since the 2008 financial crash, economists are predicting.
The Bank of England is widely expected to cut its base rate on Thursday from 4.5% to 4.25%.
1
This would mark the second rate reduction this year after it was already reduced from 4.75% to 4.5% in February.
The base rate is set by the Bank of England roughly every six weeks, and it influences the interest rates that lenders and banks offer on mortgages and savings accounts.
Generally when the base rate is lower, it means mortgage rates will be more favourable for home movers and buyers.
Markets have been pricing in as many as four base rate cuts over this year, meaning lenders have already begun slashing mortgage rates and launching a price war.
Economists now believe the base rate could fall by up to 1% over the next six months.
The cuts are also expected to bring the cost of borrowing down to below 3% for the first time since October 2022.
During the financial crisis, rates fell from 4.5% in October 2008 to 0.5% in March 2009.
Barclays has said it anticipates rates to fall to 3.5% by September.
Why do interest rates rise and fall?
The Bank of England began raising interest rates at the end of 2021 in a bid to slow down rising inflation.
If interest rates are high then many people are paying more on mortgages and loans, forcing them to spend less money on other things.
Savers get more return by not spending their money because interest rates on savings accounts are high, this also encourages people to hold onto their money.
As a result, this can help to bring down inflation.
Lenders slash mortgage rates
Because these base rate cuts are being priced in by markets, many banks and lenders have already moved to cut their mortgage rates for customers.
All big six lenders Barclays, HSBC, NatWest, Halifax, Nationwide and Santander are now offering fixed rates below 4%.
Meanwhile multiple lenders cut rates across their mortgage ranges on Friday.
HSBC made rate cuts of up to 0.25% on some of its mortgage deals and said all of its purchase and first-time buyer rates are under 5% for the first time since 2022.
A two-year remortgage deal at 60% loan-to-value now has a rate of 3.89% for non-premier and 3.84% for premier customers with a fee of £999.
Elsewhere, Coventry Building Society has reduced some of its fixed rates by up to 10 base points.
Its two-year fix at 65% LTV starts at 3.96% for residential purchase, with a fee of £999.
Why are mortgage rates dropping?
Consumer reporter Emily Mee explains how global economic turmoil is contributing to lower mortgage rates..
Mortgage rates in the UK have been dropping after US President Donald Trump imposed huge tariffs on dozens of countries in early April.
The move sent stocks plummeting and created uncertainty for economies across the globe – but an unexpected side effect of this is a boost for British home buyers.
That’s because the turmoil has led to markets now expecting more Bank of England base rate cuts.
The Bank of England’s base rate helps to influence the rates set by mortgage lenders.
Markets had priced in two base rate cuts this year, but they’re now expecting the Bank will need to cut rates four times to avoid an economic downturn caused by the global uncertainty.
Nicholas Mendes, mortgage technical manager at John Charcol, said if this happens we can expect the base rate to fall from 4.5% to 3.5% this year.
Things began to look uncertain again after Mr Trump announced a 90-day pause on the tariffs.
This could have led to lenders holding back and waiting to see what happens before slashing rates.
But several ended up moving to slash rates to below 4% regardless.
Brokers will now be keeping an eye on the swap markets.
That’s because lenders use swap rates to determine how they should price their mortgage rates.