Will rates ever go down again?

Brokers also give their views on the growing number of people taking out longer term fixes as a result of increasing rates

Will rates ever go down again?

UK interest rates achieved all-time lows during the pandemic, but the past several months have seen interest rates climbing once again as the costs of living continue to rise.

Last week, the Bank of England raised its base rate to 1.25%, marking a fifth consecutive rate hike and pushing borrowing costs to their highest in 13 years. The rate rises are an attempt to cool the UK’s red-hot inflation, which has reached a 40-year high of 9.1%; well above the bank’s target of 2%.

With inflation expected to rise further to double digits within the year, more rate increases are imminent.

So, is the age of rock bottom rates over?

“Rates have risen to combat inflation, and this is likely to continue further. To say how much further is conjecture but if you look at rates, historically, we are still well under the average,” Robert Payne, director at Langley House Mortgages, commented.

We certainly won’t be seeing sub-1% mortgages again, at least any time soon, according to Lewis Shaw, founder and mortgage expert at Shaw Financial Services.

“Those days are over unless we have to contend with another emergency like COVID,” Shaw remarked. “Even then, I think we’ve seen that monetary policy magic tricks such as dropping bank rate to 0.1% haven’t been healthy for us in the short- or long-term. A market economy needs a sensible base rate to function effectively; otherwise, it unbalances everything else around it.”

Edward Checkley, managing director at Advias, said that assuming inflation comes down, then rate cuts could be introduced.

“However, we feel the time of super low borrowing rates is over, forever,” Checkley stressed.

Graham Taylor, managing director at Hudson Rose, thinks “the era of low rates is over.”

“I believe we are heading towards something steadier in terms of base rate, although it will likely increase further before finding its true settling point,” Taylor said.

Obviously, higher rates make some mortgages more expensive, but anyone on a fixed-rate mortgage will stick to the same rate for a set period. By contrast, a tracker mortgage is usually linked to the base rate, meaning its cost will rise as the rate goes up.

Read more: Search for fixed-rate mortgages trends up as interest rates rise.

But will borrowers who locked into longer term fixes regret it if rates come back down once inflation is under control?

Imran Hussain, director at Harmony Financial Services, thinks so.

“Anyone fixing for longer than five years right now may well end up regretting it once inflation is bought under control and lenders readjust rates,” Hussain said. “As always, seek professional advice as fixing for a long period right now may not always be best for your personal circumstances.”

Checkley is of the opinion that “fixed rates will continue to rise and with global issues affecting inflation, Bank of England rate rises will only slow the growth rather than reduce it.”

“Therefore, we could see five-year fixed mortgages in the 4% plus range within 6-12 months,” he said.

Payne, meanwhile, believes that “rates will come down again once inflation is under control, so there is an argument not to fix in for the long-term at the moment.”

“Equally, there is a counter argument that we are still not over the worst, and it could be many years before the Monetary Policy Committee feels comfortable enough to bring rates back down,” he added.

“If you’re intending to stay put in your property, fixing for five or 10 years now still makes a lot of sense. Yes, rates are higher than where they were a year ago, but they’re still dirt cheap by historical standards. My best guess is that mortgage rates will settle around the 4-5% mark for the next few years,” Graham Cox, director at self-employed mortgage broker SEMH, said.

“Is fixing for 10 years a good idea? Well, it’s down to your appetite for risk, as most long-term fixed rates carry a hefty Early Repayment Charge. If you are considering one, make sure you plan on staying in the property for that long, as it could be a costly mistake if not,” Paul Neal, mortgage and equity release specialist at Missing Element Mortgage Services, pointed out.