Most experts still believe there will be a gradual decrease down to 4.5 per cent by the end of Q4 with some even daring to predict that it could go as low as four per cent – a scenario discussed recently by Walid Koudmani, chief market analyst at XTB, one of the largest stock-exchange-listed CFD brokers in the world.
After UK inflation remained steady at four per cent in January when economists had expected a small jump in prices, most traders are now betting that UK interest rates will be cut by 0.25 per cent in June.
UK interest rates are then forecast to fall to around 4.5 per cent by the end of 2024 though, with inflation proving stickier in the US and EU, these forecasts for UK interest rate cuts are far from ‘locked in’.
The reasoning for this outlook is derived from an easing of inflationary pressures the UK market is currently experiencing, with data showing the state of inflation could have peaked or is peaking – allowing the Bank of England to loosen its cautionary grip on the UK economy.
Predicting the path of mortgage rates
When looking at how that affects the mortgage market, we can make an assessment by following the trends of lender mortgage rates.
While some lenders have already begun offering sub-four per cent mortgage rates, mainly for products with lower loan to value (LTV) ratios, others remain cautious.
We have seen a steady decline since the start of the year with averages coming in at just above five per cent for 85 per cent LTV and lower. With some lenders increasing rates in recent weeks with no real explanation based on the Bank of England base rate continuing to stay at 5.25 per cent, this mixed response reflects the ongoing uncertainty surrounding the future economic landscape.
Lenders will always play on the cautious side when issuing rates to potential borrowers, so they will be the first to pre-empt or react to news of uncertainty and change in the market.
I would expect a small increase over the next month as an artificial buffer for lenders to protect themselves from the market changing over Q2 or Q3 of this year.
This would allow them breathing room to navigate exactly where they want to place themselves on the market.
