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.

 

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT