What will happen to interest rates in 2024 and what it means for your mortgage

IT’S been a roller coaster year in the housing market, so it’s only right to be curious about what could happen to interest rates in 2024.

Bank of England has increased rates steadily for nearly two years now, with rates currently standing at 5.25%.

At the beginning of 2023, interest rates stood at 3.5%.

And financial markets are now betting that the BoE will be forced to launch a deep round of interest rate cuts next year amid the growing risk of a recession.

The central bank was forced to increase rates to tackle soaring inflation, which peaked at 11.1% in October last year.

The annual rate at which prices are rising slowed to 3.9% in November, down from 4.6% in October this year, according to the Office for National Statistics (ONS).

About five million mortgage holders have moved to a new fixed-rate deal since interest rates started rising in late 2021.

In that time, the number of mortgage arrears has jumped as long cost of living pressures and higher rates on home loans bite.

With this in mind, millions of homeowners will want to know what will happen with rates in the future.

The Sun asked mortgage experts Nicholas Mendes from broker firm John Charcol and Karen Noye, a mortgage expert at Quilter, about what they think will happen to interest rates next year.

Will mortgage rates go down in 2024?

Karen said that it’s likely the Bank of England’s base rate has hit its peak now that inflation has started to fall.

But this doesn’t mean that interest rates will come down straight away.

She said: “The Bank is expected to hold rates higher for longer given it cannot risk returning to a situation where it is forced to hike rates further should a cut have adverse effects, so we are unlikely to see a reduction for some time yet.

“This means mortgage borrowers will face higher mortgage rates for longer too.”

If rates are to come down, Karen says this will likely come in the second half of 2024.

“If the Bank of England begin to feel confident enough to begin reducing interest rates then some mortgage borrowers could benefit – particularly those on a variable rate or tracker mortgage as they would see a fall in their monthly bills.

“If inflation continues its downward path, those looking for a fixed rate mortgage may also find they are able to secure better deals as these rates are based on future market predictions.”

This is because the BoE base rate is often used by high street banks to set the rates they offer to customers on things like mortgages.

But Karen warned that while the base rate may begin to fall, it will still be considerably higher than in recent years.

She said: “Those with low interest rate mortgages coming to an end in 2024 will still face a considerable jump in their monthly payments.

“While the lows seen in previous years remain far out of reach, should mortgage lending remain subdued then competition between lenders will heighten as they battle for business which could bring rates down further.”

I’m a first-time buyer – what should I do?

Nicholas said that affordability will still be a huge barrier for budding first-time buyers.

Record high rents and the rising cost of living have made it even harder to save enough to buy a first home.

But Nicholas said there is still hope as lenders look to compete and attract custom by offering cheaper deals.

He told The Sun: “Unless we see a significant turn in events mortgage rates are still expected to start with a 4% for much of the year.

“But consumers will have more choice. We have already seen lenders introducing competitive three-year fixed rates which soften the blow of a two-year fixed and avoid the tie in of a five-year fixed.

“We’ve also seen lenders price in cheaper rates with higher arrangement fees making it more affordable for mortgage holders, dampening the impact of higher rates on mortgage holders’ monthly repayments.”

It is possible to make your hard-saved cash go further and secure a mortgage you can afford to repay.

From schemes designed to give first-time buyers a helping hand to 100% mortgages – we’ve put together a guide to all the available first-time buyer help.

I’m coming to the end of my mortgage – what should I do?

Nicholas said homeowners should be watching mortgage rate movements closely.

He added: ” Lenders will continue to price product transfer and remortgages aggressively to build and retain their mortgage book.

“As a result, at the start of the year we should see more lenders release sub 4.5% five-year fixed rates, with two- and three-year fixed rates around 4.8%.”

“Moving into the middle part of 2024 expectations of a sub 4% will be on the cards as market price in a reduction to bank rate in future years.

“Five-year fixes will be the first to see a sub 4% rate, with two and three-year fixed rates then breaking the 4.5% benchmark.”

If you’re worried about making repayments, it’s vital you reach out for help.

We’ve put together a full list of mortgage help you can get now – including free debt advice and cost of living cash.

How to get the best deal on your mortgage

If you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.

But there are several ways to land the best deal.

Usually the larger the deposit you have the lower the rate you can get.

If you’re remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.

A change to your credit score or a better salary could also help you access better rates.

If you have a fixed rate, you could see higher rates when you come to the end of the current term after thirteen Bank rate rises since December 2021.

And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.

If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.

Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.

But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.

To find the best deal use a mortgage comparison tool to see what’s available.

You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.

Some brokers charge for advice, so ask them first.

It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.

You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.

You can use a mortgage calculator to see how much you could borrow.

Remember, if you decide to remortgage to a new lender you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.

You may also need to provide documents such as utility bills, proof of benefits, your last three months’ payslips, passports and bank statements.

It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, providing you don’t want to borrow more or extend your term.

You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.