Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
The latest Monetary Policy report says rates are expected to remain around 5.25% until autumn 2024 and then decline gradually to 4.25% by the end of 2026. The future of interest rates depends significantly on how quickly inflation drops – while wage growth and unemployment also play a factor.
As a baseline scenario, the 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025. Here's where mortgage rates are headed for the rest of the year and how that will impact the housing market as a whole.
But we expect the Fed will begin cutting rates in March 2024—bringing the federal-funds rate to 3.75%–4.00% by the end of 2024. We expect the Fed to continue cutting until early 2026, ultimately bringing the federal-funds rate down by over 300 basis points.
Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.
For 2025, the rates will go down to 4.5%, and in 2026, it is predicted to be 4.2%. For now, we can't say anything related to the rate it will depend on the inflation rate and the authorities. The eighth meeting is going to be held in Dec, in which you will get to know whether there will be a hike or not.
The bottom line
Sure, mortgage rates could fall to 3% at some point, but chances are that's not going to happen anytime soon. Moreover, waiting for rates to drop before you buy your home could backfire. Instead, consider buying your house now and refinancing your mortgage when rates improve.
UK Interest Rates are likely to fall from there but are predicted to level off at around 4.5% in 2025.
The market is pricing in that the Bank of England base rate will fall to 4.73% by July 2024 (down from its current level of 5.25%). By the end of 2025 it will have fallen to 3.35% before slowly falling to around 3.19% in 2029, as shown in the table below.
The average two-year fixed rate mortgage is currently 5.93 per cent, according to Moneyfacts. That compares to 5.54 per cent for five-year fixes. Those with the biggest deposits or with larger equity stakes in their home can also do much better when fixing for five years, rather than two years.
What will UK Interest Rates be in 5 Years? The Bank of England predicts that UK interest rates will be 4.4% in quarter two of 2024. Rates are likely to decrease further to 3.8% in the second quarter of 2025 and reach 3.6% in 2026. Beyond this, it is increasingly difficult to predict UK interest rates.
If inflation continues to fall as it did throughout 2023, industry insiders are optimistic that average mortgage rates could fall below 5% again in 2024. However, December's inflation figures have given some analysts cause for concern.
The Confederation of British Industry (CBI) does not expect the Bank of England to cut interest rates until 2026, predicting that the base rate will stay at 5.25% for at least two more years.
The latest yield curve from the BoE forecasts a cut in interest rates in quarter 2 of this year. But it's clear this higher for longer interest rate environment is here to stay. Data shows interest rates will remain above 3% well into 2027.
Mortgage Bankers Association (MBA).
MBA's baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
“So far, the first quarter of 2024 has been very similar to the first quarter of 2023. Inflation has been up in some categories and made rates move more upward than downward. Rates came down at the end of 2023 but the most recent Fed meeting should sign that there won't be any rate cuts until summer 2024.
In the MPC's latest most likely, or modal, projection conditioned on the market-implied path for Bank Rate, CPI inflation returns to the 2% target by the end of 2025.
If you're looking for certainty and peace of mind, a 5-year fixed rate mortgage may be the right choice for you. With a longer fixed term, you'll have predictable repayments for a longer period, protecting yourself against any potential interest rate rises.
"Homebuyers should expect mortgage rates to move lower as we head through 2024," Sturtevant said. While Fannie Mae expects rates to fall below 6% by the end of the year, other economists, like Fratantoni, expect the 30-year rate to finish the last quarter of 2024 at 6.1%.
After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%. Prices have started to come down, but the group has signaled it wants to see more positive data before pulling the trigger.
The drop fuelled money market expectations that the Bank of England could cut interest rates as early as spring 2024, and already a five-year fixed-rate mortgage deal priced at below 4% is on sale for the first time since May.
Mortgage rates on average are expected to rise from a low of 2pc in 2021 to a peak of 5pc in 2027 across all properties – 0.8 percentage points above the OBR's forecast in March.
Simply look at October's estimated forecast, where rates were expected to stay above 5% up until quarter three of 2024 - falling to 4.78% by the year-end. The latest estimated yield curve from the BoE paints a different picture (3 January). Rates are now expected to fall to 4.65% by the year-end.
According to their latest forecast for 30-year mortgage rates in October 2023, they expect them to range from 7.40% to 7.86%, with an average of 7.63%. They also predict that mortgage rates will peak at 9.41% in May 2024, before gradually declining to 3.67% by November 2027.