US and UK Mortgage Rates Drop in September 2024: What It Means for Homebuyers

Mortgage rates in both the U.S. and the United Kingdom have been on a downward trajectory in September 2024 so far, offering potential relief to homebuyers and refinancing homeowners. This trend is driven by expectations of further interest rate cuts from the Federal Reserve and, to a lesser extent, the Bank of England.

The declining mortgage rates present opportunities for homebuyers and those looking to refinance their existing mortgages. Lower rates can result in reduced monthly payments, making homeownership more affordable.

Mortgage Interest Rates in U.S. and U.K.

U.S. mortgage rates  continued their downward trend, approaching 6%, which is likely to boost both purchase and refinance activity. Although mortgage rates don’t always directly follow Federal Reserve policy, this first-rate cut over four years will undoubtedly influence the housing market.

The recent decline in rates suggests that much of this cut was already anticipated, but we can expect further decreases, stimulating more housing activity.

According to the Mortgage Bankers Association, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell to 6.15% in the week ending Sept. 13, 2024, down from 6.24% the previous week. This marks the seventh consecutive week of declining rates, totaling a 67-basis-point drop.

This is a significant improvement compared to the 7.31% rate seen a year ago. The ongoing decline in rates reflects expectations that the Fed will begin reducing key borrowing costs this month.

For jumbo loans—over $766,550—the average rate decreased to 6.41% from 6.56%, while the rate for 30-year mortgages backed by the Federal Housing Administration fell to 6.12% from 6.24%.

As of Sept. 19, 2024, mortgage interest rates in the UK  have experienced slight changes for homebuyers with 5% to 10% deposits. For those with a 95% loan-to-value (LTV) ratio, the average rate for a 2-year fixed mortgage dropped from 5.71% to 5.64%, reflecting a decrease of 0.07%.

Meanwhile, the 5-year fixed rate for the same LTV rose slightly from 5.30% to 5.31%. For buyers with a 90% LTV, the 2-year fixed mortgage rate fell from 5.47% to 5.41%, while the 5-year fixed rate declined from 4.96% to 4.90%.

What It Means for Mortgages and Savings

Bank of England’s decision to maintain the base rate at 5% marks a year since the central bank paused its aggressive interest rate hiking cycle. The base rate peaked at 5.25% in September 2023, following 14 consecutive increases.

As the rate cycle shifted, mortgage rates began to decline, accelerating over the summer. This trend was due to expectations of further rate cuts and decreasing funding costs for lenders. Despite today’s hold, mortgage rates will likely continue falling, benefiting borrowers seeking to remortgage or purchase new homes.

While mortgage experts  anticipate a temporary slowdown in competitive rate cuts, the overall downward trend remains intact. They noted that the base rate hold is unlikely to significantly alter the trajectory of mortgage rates.

Typically, mortgage rates move in line with the base rate. However, lenders often base their pricing on long-term interest rate forecasts, making today’s decision less impactful.

The market is already pricing a decline in the base rate to 4.75% by the end of 2024. Further reductions may occur in 2025. Some analysts, like Capital Economics, predict a more significant drop  to 3% by the end of 2025.

Something Is Changing

Despite the Bank of England’s decision to maintain interest rates at 5%, mortgage rates continue to decline. Several lenders, including Virgin Money, Halifax, and Principality Building Society, have announced rate cuts for residential and buy-to-let mortgages.

In the United Kingdom, the average Standard Variable Rate (SVR) has fallen below 8% for the first time since August 2023, down from 8.18% in March. Fixed-rate mortgages have also significantly declined. Two-year and five-year fixes fell from 5.76% and 5.34% to 5.56% and 5.2%, respectively.

While the BoE has held the base rate at 5%, market expectations suggest a potential decline to 4.75% or even lower. Fixed-rate mortgage pricing already reflects this downward trend.

If the base rate remains the current one beyond this year or inflation shows signs of resurgence, mortgage rates could change as market expectations shift.