When Will UK Mortgage Rates Come Down?

If you’ve been looking to purchase a property, or anxiously awaiting your mortgage renewal then you’ll likely have asked yourself the question: “When will UK mortgage rates come down?“.

Frustratingly, regardless of how long you spend searching the internet for answers, you’re probably as likely to stumble on an accurate horoscope as you are to finding an answer to this question.

The reality is, no one truly knows…

Right now, the UK is in a period of economic uncertainty and the Bank of England is grappling with soaring inflation by steadily increasing the Base Rate.

Whilst the Base Rate isn’t the only factor which affects UK mortgage rates, it’s certainly a huge contributor. Therefore, today we are going to deep dive into the historic changes to the Base Rate and see whether we can draw any parallels to what’s happening in the economy today.

Historic Changes to the Bank of England Base Rate

Below is a graph which shows all of the changes made to the Bank of England’s Base Rate since January 1975. Please note, some years saw many more changes than others, therefore each bar represents a date in which the rate was adjusted and dates where the rate stayed the same are not included.

October 1976 – November 1977:

During this period, the Bank of England implemented a series of base rate increases. The main reason behind these rate hikes was the high inflationary pressures that the UK economy was facing at the time. In the mid-1970s, the global economy experienced a significant rise in oil prices due to geopolitical tensions. This increase in energy costs led to higher production costs and pushed up prices across various sectors, fueling inflation. To combat inflationary pressure and stabilise the economy, the Bank of England raised the base rate to curb borrowing and spending, which in turn helped to reduce demand and ease price pressures.

October 1989 to September 1992:

In this period, the Bank of England implemented a series of base rate reductions. The primary reason behind these rate cuts was the economic downturn and the need to stimulate growth. During the late 1980s, the UK experienced a boom in the housing market and a surge in consumer spending. However, this led to overheating and an unsustainable economic bubble. To address the subsequent economic downturn and prevent a deeper recession, the Bank of England reduced the base rate to lower borrowing costs and encourage investment, consumption, and business activity, thus supporting economic recovery.

October 2008 to January 2009:

During this period, the Bank of England implemented a series of base rate reductions in response to the global financial crisis. In 2008, the financial system faced severe stress due to the collapse of major financial institutions and a sharp decline in economic activity. To mitigate the impact of the crisis and support the banking system, central banks around the world, including the Bank of England, cut interest rates. These rate reductions aimed to stimulate lending, boost liquidity, and encourage spending and investment, thus stabilising the financial markets and supporting economic recovery.

March 2020 to Present:

The Bank of England implemented a series of emergency base rate reductions in response to the COVID-19 pandemic. The outbreak of the pandemic caused significant disruptions to global economies, including the UK. With lockdown measures and economic uncertainty, the Bank of England swiftly reduced interest rates to their lowest level in history. These rate cuts were aimed at providing support to businesses and households by reducing borrowing costs, encouraging borrowing and spending, and helping to mitigate the economic impact of the pandemic.

November 2022 to the Present:

Since November 2022, the Bank of England has implemented a series of base rate increases. These rate hikes were a response to the escalating geopolitical tensions and the Russian invasion of Ukraine, which caused significant market volatility and supply chain disruptions. The increased uncertainty and inflationary pressures resulting from the crisis prompted the Bank of England to raise interest rates to curb inflation, maintain price stability, and provide a buffer against potential economic shocks.

These rate increases aim to balance economic growth with the need to control inflation and protect the value of the currency. By raising interest rates, the Bank of England aims to make borrowing more expensive, which in turn reduces consumer spending and investment. This can help cool down the economy and prevent excessive inflationary pressures.

The base rate increases also serve as a signal to financial markets and businesses about the central bank’s commitment to maintaining price stability and managing economic risks. While higher interest rates can potentially slow down economic growth, they are seen as necessary measures to address the immediate challenges posed by the geopolitical situation and ensure long-term stability in the UK economy. The ongoing base rate increases reflect the Bank of England’s proactive approach to managing economic risks and maintaining a favorable economic environment amidst a complex geopolitical landscape.

Interest Rates Moving Forward

Drawing on the historical changes in the Bank of England Base Rate and the current situation of escalating geopolitical tensions, there are some notable similarities that can be observed. In the past, periods of geopolitical instability and market volatility often prompted the Bank of England to take actions such as raising interest rates to address inflationary pressures and maintain stability. These rate increases were aimed at balancing economic growth with the need to control inflation.

Looking forward, it is likely that the Bank of England will continue to closely monitor the situation and adjust the base rate accordingly to manage the economic risks associated with the ongoing crisis. Given the historical pattern, it is reasonable to expect the Bank of England will maintain a cautious approach, prioritising price stability and mitigating inflationary pressures. They may consider further base rate increases if necessary to address any potential economic imbalances and maintain a favorable economic environment.

However, it is important to note that each situation is unique, and the Bank of England will assess the evolving circumstances and make decisions based on the specific needs of the economy. Speculating on future actions without concrete information is challenging, and it is always advisable to closely follow official statements and reports from the Bank of England for the most accurate insights into their future course of action.

The next Monetary Policy Committee (MPC) meeting will be on Thursday 22nd June 2023. This will be the next meeting where the committee vote on whether to increase the Base Rate or not. The following dates have also been confirmed for additional meetings where the Base Rate could be increased further: Thursday 2rd August 2023, Thursday 21st September 2023, Thursday 2nd November 2023 and Thursday 14th December 2023.

Since December 2021, the MPC have voted to increase the Base Rate every time they’ve met.

Secure a Rate Today to Protect from Future Rises

Like many, you are probably concerned about the impact that these continuous interest rate rises will have on your families finances. The good news is Prospect Tree Mortgages are here to help. We’ll offer bespoke financial advice and guidance to help you make the most informed decisions about your financial future. Click here organise a free chat with one of our experts.