Time to Surf the Dip?

Interest rates are falling - and if you have hundreds of thousands of pounds worth of mortgage debt - that could be saving you a fortune.

But are you making the right decisions or missing out on the best deals - here's a guide to what you should consider.

Q: What is happening to interest rates and where are they expected to go?

A: Interest rates are widely expected to fall further as the Bank of England, reacts to falling inflation. It should be said that inflation is still higher than the Bank of England wants it to be. Inflation measured 2.6% in March, down from 2.8% in February. The Bank of England’s target is 2%. So the latest figures are not time for a big sigh of relief - but a little a little more relaxation around the shoulders is definitely justified. It means that the Bank has more flexibility to cut interest rates and when the Bank of England cuts the rates it charges the big financial insititutions - they in turn can afford to pass the rate cuts on to the likes of us.

Q: How high have they been and how low might they go?

Who knows is the accurate but rather useless answer. The better answer is that there are some predictions and while events might turn out to be different, who knows what will come from the White House for instance, they tend to be a fairly good guide.

The current base rate is 4.25% and Oxford Economics predict that it will be 2.5% by 2028. That's an enormous fall and worth pausing for a moment to consider its impact.

According to the Bank of England, the average UK mortgage was £184,445 in Q1 2024.

If a mortgage was cut from 4.25% to 2.5% it would save the average mortgage holder £3,227 per year (7,838 Vs 4,611)

Q: So if you have a mortgage or about to get one - what should you do - where are some of the best deals?

A: Well if you want to bank the gain you could fix your rate now.

Lloyds are offering a 2 year fixed at 3.72%

Halifax are offering a 2 year fixed at 3.87%

Coventry Building Society are offering a 2 year fixed at 3.89%

You can get a 5 year fix from Lloyds from 3.78%

So in 2 years time - if the analysis from Oxford Economics is right - base rates would be about 3%. On the face of it - that seems like a reason NOT to fix, since base rates would be below the rate they are offering you and you would be locked into. But it is a better offer than it first seems because mortgages tend to charge more than the base rate.

Right now the base rate if 4.25% but the best variable rate I can find right now is slightly above the base rate (4.29% from Newbury Building Society) which you can find on the excellent moneyfactcompare.co.uk site. The best NatWest tracker mortgage rate is 4.69% - which is about 1/2% above the base rate. HSBC charge 4.89% and NatWest charge 5.02%

So the long and the short of it is, banks and building societies charge abiovethe base rate - so locking in now for 2 years at around the base rate, banks some of the gains from the interest rate falls and avoids any nasty surprises. It might be that interest rates fall further than expected and you would have been better to stay on a variable rate but you are buying piece of mind.

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Banks are really annoying - rather than just give you a nice easy table of the kinds of rates they offer - they lure you in with a Googlke headline such as "Compare our mortgage rates' and then ask lots of questions often including asking for your email etc, before they tell you anything useful. By the time you have gone through that stuff - you are already bought into the diea of going with them. Of course they do need to know details to show you what is relevant - but I suspect their motivation is less to do with helping you than with making you give up looking elsewhere and having filled out the form - staying with them.

I would make your first point of call  moneyfactcompare.co.uk which just gives you the facts and if they can do it - why can't the banks and building societies!

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Q: How early should I be getting my mortgage in the buying process?

If you need to remortgage in the next three to six months, it may be possible to secure a new mortgage deal now and put it on hold for when you actually buy the property.

Some lenders have reduced the length of their lock-in period but it's definitely worth checking this out - so you can bag the best deal and keep it in your back pocket for when you need it.

A mortgage agreement in principle (AIP) is a confirmation from a mortgage lender that they would, in principle, be willing to lend you a certain amount. It can also be known as a decision in principle (DIP). Having an AIP can make you a more attractive buyer, as it shows the seller and their estate agent that you will be able to secure the amount of money you need to buy the property. There is a great guide to the process from Which? - here is a link.

Q: So one of the big choices is to go for a fixed or variable rate mortgage - are there other decisions to take into account.

1. Fixed-Rate Mortgage

What it is: Your interest rate stays the same for a set period (typically 2, 3, 5, or 10 years).

Best for: Buyers who want predictable monthly payments.

Pros: Protection from interest rate rises, easy to budget.

Cons: You may pay more if rates fall, and early repayment charges often apply.

2. Tracker Mortgage

What it is: The interest rate "tracks" the Bank of England base rate (e.g. base rate + 1%) for a fixed period.

Best for: Buyers willing to take some risk for potential savings.

Pros: Can benefit from lower rates if the base rate falls.

Cons: Payments can rise if the base rate increases.

3. Standard Variable Rate (SVR) Mortgage

What it is: A lender's default interest rate — typically applies after a fixed or tracker deal ends.

Best for: Short-term flexibility.

Pros: Usually no early repayment charges.

Cons: Often higher and more unpredictable than other rates. It really is the rate that you revert to when your discount ends and if you are on it - you mcan probably find a much better rate elsewhere

4. Discount Mortgage

What it is: Offers a discount off the lender’s SVR for a set period.

Best for: Buyers looking for lower initial payments.

Pros: Lower rate than SVR for the discount period.

Cons: Rates still move up/down with the SVR; not always the cheapest deal overall.

5. Offset Mortgage

What it is: Links your mortgage to your savings — interest is only charged on the difference.

Best for: Savers who want to reduce interest payments.

Pros: Can reduce the term or payments; flexible access to savings.

Cons: Usually higher interest rates than standard deals.

6. Interest-Only Mortgage

What it is: You only pay interest monthly, not the loan itself — the capital must be repaid later.

Best for: High-income borrowers or those with a clear repayment plan (e.g., investments).

Pros: Lower monthly payments.

Cons: You must repay the full loan at the end — riskier and harder to qualify for.

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