The markets expect there to be three more base rate cuts this year, which means it should be down to 3.75% by the close of 2025.
This comes in response to the Bank of England’s decision to slash the base rate to 4.5%.
Notably two members of the Monetary Policy Committee wanted a deeper cut to 4.25%, while Bank of England Governor Andrew Bailey signalled that there will be more reductions in the coming months.
Frances Haque, chief economist at Santander UK, said the bank is forecasting three more cuts this year, including one in May.
She said: “The cut to the Bank of England base rate will come as some light relief to those homeowners with fixed rate mortgages maturing this year, and should see a boost to overall household confidence, following a period of decline at the end of 2024.”
Haque reminded people that, while rates are lower than they were two years ago, borrowers coming off five-year fixed rate terms are still going to have to shoulder far higher mortgage rates.
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “The vote was resoundingly for a cut, with two members wanting to go even further pushing for a 0.5% reduction.
“This has increased expectations that further rate cuts will come more quickly this year with markets now pricing in the likelihood that the base rate will be close to 3.75% by December, indicating three further reductions.
The Bank of England halved its growth forecast for 2025, from 0.75% to 1.5%, meaning more cuts might be required to kickstart economic activity.
Streeter added: “Given the deteriorating economic picture, financial markets are now expecting at least two maybe three further interest rate cuts this year, with the base rate likely to drop below 4% by 2025.
“The speed will depend on how the economy responds in the months to come. Businesses are already feeling the pain of upcoming changes to National Insurance contributions, as with suppliers starting to pass on the costs of higher expected wage bills. “
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates continue on a downwards path with some lenders dropping their mortgage rates, in part reversing recent increases.
“This rate reduction was largely expected by the markets and has therefore been factored into pricing already. However, a continual decline in Swaps would enable lenders to price more keenly, easing borrowers’ affordability concerns.
“Those looking to take out a new mortgage or refinance in coming months should plan ahead as much as possible, seeking advice from a whole-of-market broker.”
Via @PropertyWire