Anyone hoping to buy a home or who is nearing the end of their current mortgage deal may be wondering what lies ahead for mortgage rates in 2024.

As inflation finally eased in 2023, the Bank of England chose to keep the base rate on hold at 5.25% for three consecutive months. This saw lenders gradually start to reduce rates towards the end of the year, and since 2024, a flurry of further rate cuts have seen some deals falling below 4% for the first time since last summer.

However, as the past few years have demonstrated, no-one can be certain what the future holds for mortgage rates, which can make it difficult to work out how best to proceed.

Here, we look at what could lie ahead in 2024 for mortgage rates, how to choose the right deal for you, and some of the ways you might be able to bring down your mortgage costs.

What happened to mortgage rates in 2023?

Early 2023 was a particularly uncertain time for homeowners in the wake of September 2022’s disastrous mini Budget. Some lenders introduced rates higher than their standard variable rates (SVRs), which is usually the most expensive rate on the market. Rates remained substantially higher than a few years earlier.

The Bank of England continued to hike the base rate in 2023 with the aim of bringing down high inflation, which led to average mortgage rates exceeding 6.5% in the summer months. Thankfully mortgage rates started to ease as inflation eased towards the end of the year. Read more in our article Interest rates held at 5.25%: what it means for you.

According to research by financial analyst Moneyfacts.co.uk, the average two-year fixed rate is now 5.66%, and the average five-year fixed rate is 5.28%. However, for those with a significant deposit if buying, or a large amount of equity in their homes if remortgaging, much lower rates are available, with the lowest two year fix currently at 4.34% and the lowest five year fix at 3.89% (at the time of writing).

Will mortgage rates keep falling in 2024?

Without the help of a crystal ball, no-one knows exactly what will happen in the future, but many brokers don’t expect rates to continue falling much further.

Teddy Cenaj, mortgages expert at Rest Less Mortgages, said: “Rates have fallen below the 4% barrier which is fantastic, and they may fall further. Swap rates are down month on month, so there could be room for further reductions. But no-one can predict with certainty where rates will move this year as it depends on a wide range of factors, including interest rates, swap rates, inflation and so on.”

Mortgage rates are significantly influenced by ‘swap’ rates, which are the rates that banks and building societies charge each other to borrow money. Swap rates are affected by the wider economic outlook and predicted movements in the Bank of England’s base rate.

Some brokers believe these significantly cheaper deals may not be around for long. Chris Sykes, from broker Private Finance, pointed out that swaps have started to edge upwards in the last few days.

He said: “Some lenders may be priced too competitively in the current market and these cheap rates could be short lived in certain cases, but most rates currently on the market still have a fair margin against swaps attached to them.”

Meanwhile, while inflation has dropped during the past year, it remains nearly twice the Bank of England’s 2% target, at 3.9%. This means that the Bank of England may not start cutting interest rates for some time.

Paul Dales, chief UK economist at Capital Economics, said: “We believe the Bank of England won’t cut interest rates from 5.25% until late in 2024. But a stagnant economy will lay the groundwork for a more marked easing in price pressures in 2025 and more significant interest rate cuts. Our forecast that rates will be cut to 3% in 2025 is lower than the cuts to 4% priced into the markets.”

What are mortgage rates based on?

There are a range of factors involved in determining mortgage rates in general, including competition in the market and rates on offer by other lenders. Sykes said: “The lender’s own cost of borrowing is another major factor, which is impacted to a large extent by the swap rate market and the Bank of England (BoE) base rate. As the Bank’s interest rate rises, this directly impacts the cost of some mortgages.” Swap rates are the rates that mortgage lenders use to price loans alongside the Bank of England’s base rate.

The rate you will receive personally is also impacted by the deposit you can put down, or the amount of equity you have in the property if you’re remortgaging, along with your personal circumstances including how much you earn, and your outgoings. Sykes says: “It also depends on the type of product you choose, and your specific circumstances. Mortgage rates tend to be more expensive if your circumstances are quite complex, which limits the pool of lenders available and thus a specialist lender is required. For example, if you are recently self-employed, have adverse credit, or need to stretch affordability.”

Where could rates stand in 2024?

Exactly where rates will be in the coming year depends on the wider economic environment, other lenders’ rates, and future rate decisions by the Bank of England.

Cenaj said: “There are a lot of different opinions in the market at the moment. I believe that more and more rates may fall into 3-4% with higher LTVs being in the 4% bracket. I’m surprised by how quickly rates have been falling recently and it’s great to see.”

However, even with fixed rates falling, brokers agree that borrowers are unlikely to see the rock-bottom mortgage rates below 2% that we’ve become accustomed to in previous years.

Should you choose a fixed or variable mortgage?

Wherever rates go, you may be wondering whether you should choose a fixed rate or variable mortgage deal. Around three-quarter of UK homeowners are currently on fixed-rate mortgage deals, with a set interest rate for a specific period of time of usually two, three or five years.

The most obvious benefit of a fixed deal is the security of knowing exactly how much you’ll be paying in monthly mortgage repayments for the deal’s term, no matter what happens to the Bank of England base rate. However, if interest rates fall, you won’t benefit from a reduction in repayments. Read more about the standard differences between these types of mortgages in our article Should I go for a fixed or variable rate mortgage?

However, tracker deals are also often more flexible with many having no early redemption charges, which means borrowers are free to move onto a fix if rates fall at a later date. 

Hollingworth said: “If the markets are right and base rate does fall then tracker rates will follow but with some uncertainty still in play as to when those cuts may come it’s likely that borrowers will take advantage of the lower fixed rates.  The fall in rates is certainly good news for borrowers when compared to the rates of only six months ago.  Those coming to the end of a low fixed rate will still have to deal with rising monthly payments but at least some of the pain will have eased as a result of these improvements.”

What if I can’t afford my mortgage payments in 2024?

Borrowers may already be struggling to afford higher mortgage costs on top of the rising cost of living. If you’re worried about your finances, you can read our guide Are money worries affecting your mental health?

If you know you won’t be able to afford to pay your mortgage, get in touch with your lender as soon as possible. They may be able to provide you with options that could help you reduce your monthly payments, for example, lengthening your mortgage term. Find out more in our article What can you do if you can’t pay your mortgage?

How can you reduce mortgage costs?

Many people are worried about how they will manage steeper mortgage payments when their current mortgage deal ends, but there are steps you might be able to take to reduce the impact of higher rates.

If you have savings set aside, you may want to consider making mortgage overpayments, so that you can reduce your mortgage balance more quickly. Most lenders will allow you to repay up to 10% of your mortgage balance each year without penalty, but check your deal’s particular terms before you start overpaying. Read more in Should I overpay my mortgage?

If you don’t have savings available to reduce your mortgage, and know you won’t be able to afford higher mortgage costs when your current deal ends, talk to your lender as soon as possible, and start thinking about ways you might be able to reduce your monthly payments. For example, if you’re a homeowner who is over 55, you may want to consider seeking advice on alternative mortgage options, such as retirement interest-only mortgages. Like standard interest-only mortgages, you only pay the interest on your mortgage amount. You don’t have to worry about repaying the original loan, which is only repaid when you die or move. Find out more about the pros and cons of this type of mortgage in our article How retirement interest-only mortgages work.

If your mortgage deal is ending within the next six months, it’s a good idea to start looking for your next deal sooner rather than later. Most lenders will allow you to secure your next mortgage up to six months in advance, so ideally you should start your search at this point.

Get expert mortgage advice

A broker can help you to find the cheapest mortgage deal for your circumstances, and continually review your rate and ensure you secure the best rate until your deal starts. A broker can also do the sums on your behalf, as once you factor in mortgage fees, you may find that the lowest rate isn’t the best one for you. Read more in our article Why the lowest rate mortgage may not be the cheapest deal.

Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice** on standard, retirement interest-only and buy-to-let mortgages.

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