Experts Predict Sub-4% Fixed-Rate Loans Amid Bank Rate Hopes

Anticipated Drop in Mortgage Rates

Experts anticipate a significant decline in fixed-rate loans for homeowners, with rates potentially falling below 4% in the coming weeks.

This projection follows TSB’s recent reduction in home loan costs by up to 0.35 percentage points, joined by other lenders such as HSBC, Virgin Money, and the Co-op announcing rate cuts this week.

Bank of England’s Impact on Mortgage Costs

The Bank of England’s decision to maintain its base rate at 5.25% for the third consecutive time strengthens the belief that mortgage expenses may have peaked.

Forecasts suggest a possible one percentage point reduction in interest rates to 4.25% by the end of the next year, with growing speculation among traders for a rate cut as early as March or May.

Global Economic Indicators

Comments from the Federal Reserve’s Chairman, Jerome Powell, hinting at a potential peak in the rate rise cycle in the United States, contribute to the mounting expectation of rate cuts. The Bank of England faces pressure not to deviate significantly from other central banks when the rate reduction begins.

Implications for Borrowers

While reduced mortgage rates will alleviate the burden for 1.5 million borrowers due for remortgaging next year, homeowners will still face higher rates compared to their existing deals. The current average two-year fixed-rate mortgage stands at 5.98%, a considerable increase from 2.34% before the initial base rate rise in December 2021.

Economic Strategy and Impact

The Bank of England’s rate hikes aimed to counter inflation, which soared to 11.1% after the conflict in Ukraine triggered spikes in energy and food prices. Although inflation has since reduced to 4.6%, the Bank’s goal remains to bring it down to 2%.

Economic Outlook

The Bank also revised its growth projection to zero for the three-month period leading up to December, marking a downgrade from its earlier forecast.

The government sees the inflation drop as a triumph, but the Bank exercises caution regarding the economic landscape.