Experts expect five-year fixed rates will fall below 4 per cent in early 2025 with two year rates likely to follow later in the year.
It comes as the base rate is likely to be held at 4.75 per cent by the Bank’s Monetary Policy Committee (MPC) on Thursday, following a 0.25 percentage point cut in November.
A fall in mortgage rates will boost real household disposable income, one of the key measures Starmer pledged to increase in his ‘Plan for Change’, as people will have more money left over at the end of the month if they are spending less on repayments.
James Reed, CEO of the Reed Group, told The BBC’s Sunday with Laura Kuessberg that job vacancies fell 13 per cent on his company’s data for November, “a very significant decline” which he blamed on a Budget that “spooked business”.
Nick Mendes, of brokers John Charcol, said: “Mortgage rates are expected to decline in 2025, but the extent and pace of this reduction will depend on several factors.
“Two-year fixed rates are also expected to decline, but they may not fall below 4 per cent as quickly or as significantly as 5-year fixed rates.
Elliott Culley, director of Switch Mortgage Finance, added: “Provided inflation doesn’t have any abnormal figures we should see a return to rates under 4 per cent around February-time.”
Some mortgage lenders have introduced sub-4 per cent deals this year, but average rates offered to all borrowers including those remortgaging have remained above that threshold.
Generally, banks up their mortgage rates based on swap rates, which follow long-term predictions for where the Bank of England base rate will go in the future.
Aaron Strutt, broker at Trinity Financial, said: “Rates are edging closer to 4 per cent, the big lenders are bunched just above this at the moment, it seems likely we’ll have a rate under 4 per cent early next year.
“We’ve seen before mortgage rates can come down even if the base rate stays the same. I wonder if over Christmas, money markets might get a bit cheaper which mean we might get cheaper fixes.”
Rates below 4 per cent were available earlier this year but began to rise in qutumn.
With a rate hold expected on Thursday, most will not see a change to their mortgages immediately – whether it is variable or fixed.
Meanwhile, 81 per cent of people are on fixed-rate mortgages, where the interest rate is locked for a set period of time. So, if you are on this type of loan, your repayments will not change based on the decision.
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