August 2024 Mortgage Update
We’ve got GREAT news – the base rate has FINALLY dropped after a year at 5.25% – the FIRST drop since March 2024.
Want to take advantage of that drop? Now is the time! So get in touch and we’ll find you the right expert to help guide you through the process and find the right deal for you.
Yes, after 14 consecutive increases and hitting 5.25% in August last year, the Bank of England’s Monetary Policy Committee has finally decided to drop the base to 5%. So what does that mean for your mortgage and remortgage?
Today’s announcement
The last two meetings, in May and June, saw 2 members of the committee vote to drop the base rate, but were outvoted by 7 other members. We did say in our forecast that this boded well for an imminent drop – and we were right, with 5 members of the committee voting the drop the base rate on 1st August.
While it hasn’t tumbled to the luscious lows of previous years, a drop is a very good sign…
Inflation was in excess of 10% in early 2023 – way, way, WAY above the government target of 2%. In June this year, it was announced that inflation had fallen back to the target of 2% and held steady in July. So while the Bank of England had been raising, and holding, rates to tackle those high levels of inflation, it no longer seemed so necessary.
But there was a split decision – this vote was not unanimous, with the drop winning by just ONE vote. This split was due to ‘service inflation’, referring to services like hospitality and culture, which has remained high compared to ‘goods’.
The drop is positive news – you will see it reflected in your mortgage. Now, we’re not talking huge drops, but this is definitely a step in the right (downward!) direction!
Will there be more drops?
As we had those 14 consecutive increases, of course many would love to think that we’ll see a corresponding 14 decreases, but that doesn’t seem likely in the current circumstances…
Current forecasts are predicting another rate cut of 0.25% by the end of the year, dropping us – finally! – to under 5%. But that is of course, just a forecast at this stage, we’ll all have to watch closely to see what actually happens this year.
But forecasts are looking beyond this year, with conservative predictions that we’ll hit 4% by the end of 2025, eventually settling around 3.5%. So if you – like me! – have just locked in your remortgage for the next two years, you can tentatively expect to see a drop when you next come to remortgage.
If those are the conservative predictions, what are the optimistic ones? Well, Capital Economics is predicting 3% by the end of 2025, with Ruth Gregory, Deputy Chief Economist at Capital Economics saying: ‘If we are right in thinking inflation will be weaker than the Bank expects, then we still think rates will be cut to 3% next year, rather than to 4% as investors anticipate.’
Either way, there are reasons to be cheerful – just some offer more cheer than others!
What does this mean for your re/mortgage?
So what does all of this actually mean for your pocket? Well, the average 5-year fixed rate is down from 6.08% in July 2023, to 4.87% this week. AND the average 2-year fixed rate is down from 6.61% in July, to 5.25%.
There are even some reports of rates of 3.99% in July.
In July, Santander offered a buy-to-let specific deal allowing you to fix for a year so you can snap up a lower rate in 2025, as predicted by the experts. Working with a broker is KEY if you want to be made aware of these sorts of deals, so don’t forget to get in touch with us if you want to know more.
So if you are in the process of getting a mortgage or are one of the 700,000 fixed rate deals due to end later this year, this is GOOD NEWS! Fixed rate deals have already been moving downwards, with the cheapest five-year fix dipping below 4% for the first time since February.
You COULD consider a tracker mortgage, if you’re willing to bank on those expert predictions of another drop by the end of the year. Look for one that doesn’t come with early repayment charges. That way, if rates continue to come down over the coming months, you could move onto a fixed deal, penalty-free, whenever you want.
However, before you decide, remember that trackers are currently over 1 percentage point more expensive than the cheapest fixed rates, so you’ll need to run the sums and decide how much you want to rely on predicted drops BEFORE you make that decision.
If you’re already on a tracker, you’ll see your rate come down as it tracks the base rate. If you’re on a Standard Variable Rate, you MIGHT see a drop, but this will vary from lender to lender.
Unfortunately, if you’re already locked into a deal before this drop, then you aren’t going to see that impact until your next remortgage. But by then, it’s likely to have dropped again – we hope!
Are you delighted to hear that the base rate has dropped? Or do you think it should have fallen further?
