When will interest rates fall?
Homeowners will be hoping for a summer cut in interest rates, with around 1.6 million people facing much steeper costs when their low fixed mortgage deals come to an end this year.
The Bank of England’s Monetary Policy Committee voted to leave the base rate unchanged in May at 5.25% for the sixth consecutive time, with experts divided on whether we’ll see a cut in June or later on in the year.
Last month’s earnings figures were more positive than expected, prompting fears that that the Bank of England may decide to delay rate reductions for now.
Even though interest rates having changed recently, average mortgage rates jumped in April , according to Moneyfactscompare.co.uk, with the average two-year fixed deal increasing to 5.91% by the start of May, up from 5.80% in the preceding month, whilst average five-year fixed rate rose from 5.39% to 5.48% over the same period.
Rates have risen because fixed mortgage rates are more closely linked to swap rates than the base rate. Swap rates are the rates that lenders must pay other financial institutions to acquire fixed funding for a set term, and lenders use them to price their mortgage products as they are based on what the markets think future interest rates will look like.
Fluctuating mortgage rates shouldn’t deter you from remortgaging if your current mortgage deal is due to finish soon, however. A spokesman for Moneyfactscompare.co.uk said: “Although this may discourage some from securing a new fixed products, doing so could prove more cost-effective than sitting on a lender’s standard variable rate (SVR).
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“The average SVR remained at 8.18% in May, only marginally lower than the high of 8.19% recorded in November and December 2023. At this rate, borrowers would pay around £290 more each month than if they took out a typical two-year fixed deal (based on a £200,000 mortgage over a 25 year term).
Seek professional mortgage advice if you need help choosing a mortgage and remember that you can usually secure your next mortgage up to six months in advance, so if rates fall before your new deal begins, you can switch to a cheaper deal at that point.
Savings
Whilst a reduction in interest rates would be good news for mortgage holders, it will be less positive news for savers, who are currently enjoying inflation-beating returns from many of the highest-paying savings accounts.
Karen Noye, spokesman for Quilter, said: “Though banks and building societies were relatively slow when it came to passing on higher interest rates, the same is unlikely to be said when it comes to lowering them. For those looking to lock their money away for a fixed term, it is a good idea to explore the interest rates available now as they are unlikely to remain at current levels for that much longer. If you have cash savings held in account without a fixed rate then it is also important to be aware that the level of interest you are currently earning will likely fall, so you should explore other options to ensure you are making your money work as hard as possible.”
You can compare savings rates using websites such as SavingsChampion.co.uk. If your returns are currently much lower than those offered by comparable accounts, you should move your savings to an account paying more competitive interest rates. Alternatively, if you’re considering investing some of your savings in the hope of higher potential rewards over the long term, but you aren’t sure where to start, it’s a good idea to speak to an independent financial advisor who’ll be able to make recommendations based on your investment timeframe and objectives.
Save money – open an account for free, buy funds online for £1.50 and shares for as little as £4.95.