Will mortgage rates go down in 2023?

Over the last year, house prices have fallen by 5.3%, according to Nationwide. Meanwhile, mortgage rates continue to move downward. 

While falling house prices are positive for first time buyers, costly mortgages are continuing to knock demand for buyers and sales are far away, from where they were a year ago.

Mortgage rates have surged since the Bank of England began hiking the base rate in 2021. Despite falling recently, the same product has an average rate of 6.29%.

This article will explore where rates might be heading and what this could mean for you.

 

Why are some lenders cutting their mortgage rates?

Mortgage rates rose quickly last year in response to the Bank of England hiking the base rate of interest up to 5.25%. This was in an attempt to tackle inflation.

It may be shocking now to see lenders reducing some of their fixed-rate deals, following the 14th consecutive increase by the central bank.

However, inflation has been decreasing, which is giving banks increased confidence to lend money at cheaper rates.

With the Bank of England deciding to hold the base interest rate at 5.25%, it is likely lenders have priced in the likelihood of this decision.

Banks use gilt yields and swap rates to price their deals. These markets have been falling, suggesting the rate hikes could be ending.

Banks are also increasingly aware the housing market is slowing down, the number of people fighting to meet their repayments is rising and that high rates are discouraging borrowers. To attract new customer’s rates must fall.

 

What are the current mortgage rates and will they go down in 2023?

Some specialists suggest that we may have already hit peak interest rate, after rate hikes were paused in September.

If inflation continues to fall, the industry is optimistic that mortgage rates could fall below 5% again.

According to Moneyfacts, on 16 October average mortgages rates were:

• Two-year fixed deal now stands at 6.29%
• Five-year fixed deal now stands at 5.86%

On 1 October:

• Standard variable rate is 8.19%

 

How much have mortgage rates gone up?

Fixed term mortgage deals are at their highest since 2008. Back then, the average two-year fixed rate was 6.94%. It is now just 0.63% shy of that figure. However, the gap is increasing.

Before the Bank of England started to raise rates, you could get a two-year fix for an average 2.34%.

The current five-year rate is now 5.87%, compared to 2.64% in 2021.

According to Moneyfacts, rates have fallen slightly in recent months due to the Bank of England levelling interest rates:

Date	Average two year fixed rate	Average five year fixed rate
16/06/2023	5.98%	5.62%
23/06/2023	6.19% ↑	5.83% ↑
30/06/2023	6.39% ↑	5.96% ↑
07/07/2023	6.54% ↑	6.04% ↑
14/07/2023	6.78% ↑	6.30% ↑
19/07/2023	6.81% ↑	6.33% ↑
20/07/2023	6.79% ↓	6.31% ↓
26/07/2023	6.86% ↑	6.36% ↑
28/07/2023	6.81% ↓	6.34% ↓
01/08/2023	6.85% ↑	6.37% ↑
07/08/2023	6.84% ↓	6.35% ↓
10/08/2023	6.83% ↓	6.33% ↓
17/08/2023	6.76% ↓	6.25% ↓
05/09/2023	6.67% ↓	6.17% ↓
13/09/2023	6.62% ↓	6.11% ↓
19/09/2023	6.66% ↑	6.08% ↓
28/09/2023	6.48% ↓	5.98% ↓
09/10/2023	6.41% ↓	5.96% ↓
16/10/2023	6.36% ↓	5.91% ↓
30/10/2023	6.29% ↓	5.86% ↓

Source: Moneyfacts

 

The information contained in this article is correct at the time of publishing (02/11/2023).