When will interest rates go down?

Google searches for 'when will interest rates go down' has exploded by 487% in the last 12 months, according to L&C Mortgages. 

The general consensus from brokers is that the Bank of England’s latest base rate rise of 0.25% has sparked some concern amongst consumers, with many now seeking further clarity on the long-term prospect for interest rates.

Expectations

Elliott Culley (pictured left), director at Switch Mortgage Finance, said the increase in Google searches for the above question was no doubt down to worried mortgage owners hoping for further clarity before they remortgaged.

“We have seen some positive first steps over the last couple of weeks, better than expected inflation figures and a rise of only 0.25% to the base rate, have helped to steady the long-term expectations for the market,” he reasoned.

While Culley said the Bank of England still suggested there were some base rate increases to come, he added mortgage lenders seemed to have priced this in when looking at the current mortgage rates.

Lee Gathercole (pictured right), co-founder at Rebus Financial Services, agreed with Culley that following positive inflation data of late, this could mean the peak of interest rates was near to being reached.

However, Gathercole said it was expected that we may see two more marginal increases to the base rate from the Bank of England, in the near future.

“Therefore, I do not see the base rate dropping until next year, although it is already great to see major banks reducing interest rates in recent weeks,” he added.

The good news for homeowners and first-time buyers, Gathercole said, was that rates were likely to hold steady in 2024 and, by the end of next year, he believed there may be considerable reductions.

Graham Cox, founder at Self Employed Mortgage Hub, meanwhile believed the Bank of England would slowly lower the base rate once inflation was below 5% and confidence had returned for it to reach its 2% target.

Cox added that the political and economic pressure to reduce the base rate would be overwhelming once inflation fell below 5%, so this might come in the last quarter of 2023, however it was more likely early next year.

“Longer term, my best guess is the new normal for mortgage rates will be around 4.5% to 5%, with the base rate around 4%,” he said.

The Eighties

“Back to the future or more specifically 1980; beware the spectre of stagflation,” said David Robinson, co-founder at Wildcat Law.

Robinson said interest rates had been forced higher by inflation, but he believed the looming storm on the horizon was the prospect of business failures as they struggled to obtain affordable working finance or passed on the higher input costs to already over-stretched consumers.

“This in turn will trigger a rise in unemployment; the main reason we have not seen this so far, has been that many vulnerable businesses ceased trading due to COVID,” he said.

This left healthier more resilient businesses, which Robinson said had so far weathered the storm, but he believes this ship could only take so much before it started to sink.

“Until inflation stabilises and falls, the Bank of England will continue to raise rates, but as we get closer to a general election, expect to see political pressure being brought to bear on all fronts,” he said.

What are your longer term expectations for interest rates? Let us know in the comment section below.