Martin Lewis has shared predictions for when interest rates could come down and what homeowners should do about a fixed deal. As interest rates rise and many of the UK’s homeowners face sky-high payments, the money saving expert answered their questions about mortgages for a live special show on ITV on Tuesday evening.
It comes as news broke this week that UK two-year fixed mortgage rates have hit their highest level since 2008. According to data provider Moneyfacts, a typical two-year deal has risen to 6.66%, up from 6.63% on Monday, July 10.
This will almost certainly come as bad news for homeowners whose deals are set to come to an end and will need to remortgage soon. The increase will see many homeowners paying hundreds of pounds more each month. You can get more story updates straight to your inbox by subscribing to our newsletters here.
During the The Martin Lewis Money Show Live Special on ITV, audience member, Minesh, said he was on a variable mortgage, and asked when it was likely interest rates would come down. In his answer, Martin discussed a couple of the predictions for the future of interest rates by investment banks. He said Capital Economic predicted they would go up by a further 0.25%, then remain stable for the next year, before falling, while JP Morgan predicted they would rise to 5.75%, and remain around that figure until the end of 2024.
Martin also discussed how worst case scenarios predicted an increase of up to 7%. He said: "A lot of people have said to me, ‘should I hold now because they’ll go back to normal’. Super cheap wasn’t normal. That was the anomaly."
"I’m not saying they are normal now. I’m not saying they won’t go back down, I’m saying there’s no rule that says they have to go back down.” He added: “They are going to go back down, but it is going to take a long time. High interest rates are here to stay for at least the next year, but all forecasts could be wrong - we don’t know."
The money saving expert then went on to discuss how homeowners could find the cheapest deal, which included gathering mortgage details, checking lender’s 'product transfers', as well as to use a comparison site to quickly see if they could get a cheaper deal elsewhere.
When asked by a Twitter user called Laura, who was about to renew her mortgage deal and wanted to know if she should go for the two year or five year deal, Martin Lewis replied: “Well look, five year deals tend to be a bit cheaper at the moment, but two years - maybe you lock in for two years now and things are cheaper and you lock in again at a cheaper rate.”
Fellow expert, Andrew Montlake, concluded it was a “tricky” question and that it all depended on the homeowners’ circumstances, if homeowners believed the interest rates would go down and they “could afford to be wrong”, then the two years deal could be “a good place to go”.
Alternatively, a five year deal could be looked at as an “insurance policy”, Montlake said. “If you are going to stay up late, worrying about rate rises, the longer you fix for, five years fix might ease that peace of mind”, the expert added. Martin concluded that it all depended on how important was certainty for the homeowner.
During the programme, Martin Lewis also highlighted the importance, whether changes came in for homeowners in the next six months, a year, or 18 months, that they started budgeting for it now. He also suggested that they diarise six months before the fix would end in order to check products, and if possible, put spare cash aside now to reduce future mortgage payments - almost like an “emergency fund”.
