Bank of England governor expects four interest rate cuts next year: What does this mean for mortgage rates and savings?

The governor of the Bank of England says there could be four interest rate cuts next year as inflation fades.

The ONS showed inflation rose to 2.3 percent in the 12 months to September, above market forecasts.

But talk to International Board of Directors Association and the Financial TimesAndrew Bailey said that despite the current increase, he believes inflation will soon return to 2 percent.

Bailey confirmed the Bank of England’s forecast to see a four-quarter point interest rate cut next year.

If true, the base rate will drop from 4.75 percent, where it is now, to 3.75 percent by the end of 2025, as the bank has cut rates from a high of 5.25 percent since August. this year.

If interest rates falling to 3.75 percent indicates a slight move away from general market acceptancecurrently sees interest rates as high as 4 percent by the end of next year.

What might this mean for mortgage borrowers?

Those on fixed-rate mortgages will benefit from each cut, but those on other alternative jobs will have to be lucky to see their lenders cut rates, even when the donor likes it.

Those who are nearing the end of their mortgage payments for next year’s course and the year after can expect that mortgage rates it will be less when it comes to refunds if the Bank of England signals.

The mortgage rate is independent of interest rates. Instead, they prevent interest rate changes.

This means that future interest rate cuts by the Bank of England have been somewhat baked into mortgage payments.

This is why the minimum five-year interest rate yields above 4 per cent, rather than above the Bank of England’s base rate of 4.75 per cent.

However, if the market expects interest rates to drop to 3.75 percent by the end of next year rather than 4 percent there may be room for some mortgage rate cuts.

The lowest fixed rates are above 4 percent but brokers say borrowers can also pay rates below 4 percent if interest rates fall to 3.75 percent. .

Chris Sykes, technical director for mortgage broker Private Finance said: ‘This is fantastic news as it is better than many market expectations and coming from the Governor of the Bank of England it’s a popular source so this may be more. will benefit and improve things such as transfer and are factored into mortgage rates.

‘A base rate of 3.75 per cent may have the potential to see rates below 4 per cent return to the market if necessary.’

Ravesh Patel, managing director and senior mortgage adviser at Reside Mortgages, agrees that four base rate cuts next year will be good news for borrowers.

‘If it comes through, it will mark a big change in the mortgage landscape,’ says Patel. ‘The low base rate will encourage lenders to lower rates on residential mortgages, with some of the most competitive rates likely to fall into the 3-4 per cent range this time around last year.

‘However, much depends on economic conditions, including lender competition, exchange rates, and inflation conditions.

No-one is more interested in rate cuts than buy-to-let landlords and mortgages – there are around 2 million, according to UK Finance.

Buy-to-let landlords An interest-only mortgage will have a positive cash flow. This is fine and dandy when they buy investments when mortgage rates are around 2 percent.

The average five-year buy-to-let mortgage is now 5.5 per cent, according to Moneyfacts.

On a mortgage of just £200,000, moving from a rate of 2 per cent to 5.5 per cent would cost £917 a month instead of £334 a month.

‘For buy-to-let investors, a rate cut could help after years of rising mortgage rates,’ says Patel.

‘Lower rates are likely to be more affordable and boost returns, especially for those who may not be able to make payments on stress tests.

‘However, the buy-to-let sector faces unique pressures, including rising regulatory costs, increased stress testing, and changing tax laws.

‘These factors can reduce borrowing costs for landlords.’

Bad news for savers

While mortgage borrowers are celebrating every interest rate cut by the Bank of England, savers, especially those without a mortgage, will be very different.

Rachel Springall, finance expert at Moneyfacts, said: ‘Further base rate cuts are bad news for the hardest hit investors as they are the ones feeling the brunt of interest rate cuts.

‘Investors who are using their money to add to their income will be oblivious if rates go down next year.

‘We’ve also seen some of the biggest high street banks slash savings rates following key rate cuts this year, so investors should check their accounts and switch if they’re getting they are money.

‘Base rate cuts can create a sense of uncertainty among investors these days, even though a simple account can cost as little as 3 per cent, which is more than a bank account.

‘Challenger banks are offering attractive returns and it’s not worth ignoring them when they have the same protections as a high street bank.’

Anna Bowes, founder of The Care Shop says it’s important to remember that these are just predictions. The truth may be different

“This is an interesting statement by the governor because it is difficult to know what will happen to the economy in the next 12 months, especially with some important events coming up, such as The new US president and trade rates are expected to be able to decide. , which may increase inflation.

‘Therefore, this hope will change, as has happened recently. Before the budget, markets were expecting 6.7 cuts by the Bank of England over the next 12 months, but this fell to 2.3 after the Budget, so the fact that the number of advertisements produced is expected to increase profitably.

‘The current expectation has increased to 3.28 cut, which may be a reaction to today’s announcement.

‘As a result, it’s hard to know what will happen, but what we do know is that fixed rates have been very stable – and have risen recently since the Budget.

‘But this report shows it’s going to start going down again, so if you can lock some of your money, you’d better do it sooner.’