Some new one pound coins. interest rates

Latest interest rate recommendation points to 3.5% by end of 2025

The Bank of England interest rate has been held at 5.25% since August 2023, but with an improvement in the UK’s growth forecast, things could begin to change soon.

The International Monetary Fund (IMF), a global organisation of the United Nations, has upgraded the UK’s gross domestic product (GDP) growth forecast for 2024 from 0.5% to 0.7%, in a welcome shift towards a stronger end to the year.

It also predicts that the UK will grow faster than any other large European country over the next six years, which Chancellor Jeremy Hunt said means it’s “time to shake off some of the unjustified pessimism about our prospects.”

It is this improved economic landscape that has led to a boost in the interest rate outlook, after many had been left disappointed that the last interest rate announcement from the Bank of England was to retain the same rate.

Borrowers across the UK have seen their costs rise over recent months, and while lenders had already been reducing rates since the start of the year, the hope is that even more competition will return to the mortgage market as the base interest rate reduces.

Inflation and interest rates heading down

According to the IMF, the UK inflation rate is now expected to come down to close to 2% in the coming months. It also predicts that the Bank of England will cut its base rate by up to 0.75% this year, then by a further 1% in 2025. This would bring it down to 3.5%, the lowest level since December 2022.

According to the most recent report, inflation has just fallen to 2.3% in the UK, meaning that prices in the consumer price index (CPI) are an average 2.3% higher than they were last year. In October 2022, inflation hit its highest rate in 40 years when it spiked at 11.1%, but it has fallen steadily since then.

The government’s target for inflation is 2%, but energy prices are playing a big part in keeping it higher than this at the moment.

In order to bring interest rates back under control too, the IMF has recommended that the UK should “bolster its public finances” and not offer any more tax cuts. It said it would not have recommended the latest government cuts to national insurance due to “their significant cost”.

The mortgage market

While mortgage rates appear to have peaked at the end of 2023, more competition returned to the market at the start of this year, despite interest rates remaining level, and this saw many lenders bring in cheaper deals with better incentives.

In recent weeks, some of these rates have begun to creep back up again – although many lenders in the buy-to-let space have been reducing the interest rates on their products.

For example, Virgin Money has reduced selected fixed rates across its buy-to-let and remortgage products, effective 22 May. Specialist lender CHL Mortgages also announced it is cutting rates by 0.21% across its entire buy-to-let range this week.

According to the latest data from Moneyfacts, as of 17 May, the average interest rate on a buy-to-let mortgage was 5.61% for a two-year fixed rate, or 5.59% for a five-year fixed rate. However, lenders continue to offer various incentives, such as fee-free products, or zero legal fees.

Which mortgage you choose will also greatly depend on your individual circumstances, with significantly cheaper rates to be found if you have a lower loan to value, for example.

Property investors and landlords who are able to buy with cash, or secure properties with less leverage – which can be a common strategy among those who diversify into more affordable locations – will be less affected by higher mortgage costs at the moment than those who rely heavily on borrowing.

However, with the improved outlook from the IMF regarding the UK economy, and the hope of a series of interest rate cuts to come, landlords looking to take out new borrowing or remortgage later this year or next year may find more favourable rates.


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