For UK homeowners and prospective buyers, mortgage rates are always a key concern. In 2024, rates are higher than we’ve seen in recent years, reflecting ongoing inflationary pressures and rising interest rates. If you’re planning to buy a home, remortgage, or simply trying to make sense of the current market, it’s crucial to understand where mortgage rates are headed and how the new Labour government’s policies could influence the housing market in the coming years.
Where Are Mortgage Rates Now?
Mortgage rates have seen significant increases since 2021, driven largely by the Bank of England’s efforts to combat high inflation. Throughout 2023 and into early 2024, the Bank of England raised interest rates to their highest levels since the financial crisis, leading to more expensive borrowing for both homebuyers and those remortgaging.
As of 2024, the average two-year fixed-rate mortgage is hovering around 5% to 6%, a sharp contrast to the sub-2% rates that were available just a few years ago. Five-year fixed-rate mortgages have similarly risen, with rates ranging from 4.5% to 5.5%, depending on the lender and the borrower’s credit profile. Variable rate mortgages have also been impacted, with many homeowners facing increasing monthly repayments as interest rates rise.
For clients, this means higher monthly payments on new mortgages and remortgages, and a greater emphasis on locking in a rate while they remain relatively stable. However, given the current economic environment, understanding the future trajectory of mortgage rates is crucial.
How the Labour Government’s Plans Could Influence Mortgage Rates
The newly elected Labour government has indicated a strong focus on tackling issues like housing affordability, the cost of living, and economic inequality. Their plans for the economy, housing market, and fiscal policy could have a significant impact on mortgage rates moving forward. Here are some key policies and potential implications for mortgage holders:
1. Focus on Affordable Housing
The Labour Party has committed to addressing the UK’s housing crisis, with plans to build 300,000 new homes per year, including a significant proportion of affordable and social housing. By increasing the housing supply, Labour hopes to reduce the pressure on house prices, making homes more affordable for first-time buyers.
- Impact on mortgage rates: While the increase in housing supply could help reduce house price inflation, it’s unlikely to have a direct impact on mortgage rates in the short term. However, easing housing market demand may stabilize prices, making homeownership more accessible in the long run, which could influence long-term interest rate policies.
2. Mortgage Support for First-Time Buyers
Labour has outlined plans to support first-time buyers, particularly through state-backed mortgage programs. These programs could provide more access to mortgages for young buyers who may struggle with high deposit requirements.
- Impact on mortgage rates: Government-backed mortgage schemes may result in more competitive rates for first-time buyers, particularly those who struggle to secure mortgages through traditional lenders. While this could provide a lifeline for younger buyers, it may also lead to increased demand, which could offset any downward pressure on prices.
3. Economic and Inflation Policies
The Labour government has also indicated a desire to rein in inflation through a mix of fiscal policies, including potentially higher taxes on wealth and corporations, and increased public spending on infrastructure and social services.
- Impact on mortgage rates: If Labour’s policies successfully manage inflation, the Bank of England could eventually ease its current high interest rate policy. Lower inflation would likely lead to more stable or lower interest rates, which would reduce mortgage rates. However, if inflation remains stubborn, rates could stay elevated for longer, keeping mortgage rates high.
4. Green Home Initiatives
Labour has committed to promoting green homes and improving the energy efficiency of housing stock, with grants for energy-efficient upgrades and a focus on environmentally sustainable construction.
- Impact on mortgage rates: While not directly tied to mortgage rates, green home incentives could make certain properties more attractive, especially if they come with financial benefits like lower energy bills or government grants for energy improvements. Some lenders may also introduce specific “green mortgages” with preferential rates for eco-friendly homes.
What Should You Do in 2024?
For financial advisors, the key to helping clients in 2024 is understanding how to navigate this complex mortgage environment. Here are a few key recommendations:
- Consider Fixed-Rate Mortgages: With interest rates still relatively high and uncertainty over future changes, locking in a fixed-rate mortgage may be a prudent option for those seeking stability in their monthly repayments. If inflation cools and the Bank of England lowers rates, clients can always explore refinancing options.
- Evaluate Green Mortgages: With increasing government incentives for energy-efficient homes, clients may benefit from exploring green mortgages or investing in energy-efficient improvements, which can sometimes come with lower rates or financial perks.
- Help First-Time Buyers Navigate New Schemes: Labour’s potential introduction of first-time buyer schemes could create new opportunities for younger clients. Advisors should stay up to date on these programs to help clients secure the best deals.
- Keep an Eye on Inflation: Inflation will continue to be a key driver of interest rate decisions in 2024. Advisors should monitor the economic situation closely, as any significant changes in the government’s fiscal policy or inflation trajectory could impact mortgage rates.
Final Thoughts
Mortgage rates in 2024 are shaped by both global economic factors and domestic policies. While interest rates remain high, the Labour government’s plans for affordable housing, inflation control, and support for first-time buyers could influence the mortgage market in the coming years. Financial advisors need to keep a close eye on these developments to guide clients through this challenging environment.
For clients, understanding these potential shifts can help you make better decisions about when to buy, sell, or remortgage. Keeping informed about both market trends and political changes is key to making the best financial decisions for your home. If you’re uncertain about your next step, now is the perfect time to consult your financial advisor to review your mortgage strategy.