After months of anticipating, Rachel Reeves has delivered her Budget – here’s what experts say it could mean for mortgage rates
Mortgage rates are likely to continue to fall after Wednesday’s Budget, experts have said.
Chancellor Rachel Reeves delivered her Budget on Wednesday lunchtime and unveiled a swathe of tax raising measures.
Budgets can often have a knock-on effect on mortgage rates, by various different means.
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If they can increase the chance of inflation rising, they can mean the Bank of England cannot cut interest rates quickly, or has to increase them, which has an impact on the prices of home loans.
But top economists have said that the Budget is unlikely to have a major impact on inflation and that a cut to interest rates from the Bank is still likely in December or February.
Here’s what you need to know, and what experts say you should do if you’re a mortgage holder or about to get one.
Budget could cut inflation, which means interest rates still set to fall
Economists generally say the Budget will not have much of an impact on inflation, but could mean it falls slightly in the short-term.
Michael Saunders, a former member of the Bank of England’s Monetary Policy Committee, said: “The decision to temporarily postpone fuel duty hikes will slightly lower the Bank of England’s nearterm inflation forecast, but they are likely to regard this as mostly a temporary effect unless it significantly affects inflation expectations.”
As a result, he added that the Bank of England “remains likely to cut rates in December or February [from their current level of 4 per cent, with rates down to about 3.25 per cent at the end of next year”.
Mortgage rates are likely to continue to fall as a result
Mortgage rates were already falling in the lead-up to the Budget, with several major lenders announcing reductions to their prices.
Nick Mendes, mortgage technical manager at John Charcol brokers, said: “Lenders have been cutting rates over the past fortnight, with reductions accelerating in recent days. Barclays, Santander, Halifax and several mid-tier lenders have all reduced pricing on two, three and five-year fixes by around 0.15 to 0.30 percentage points.
“These are meaningful moves signalling stronger competition heading into year-end.”
Experts said these cuts are likely to continue now, given the Budget has not reduced the likelihood of a cut to interest rates by the Bank of England this December.
Fixed mortgage rates tend to follow swap rates, which are loosely based on where traders think the Bank of England interest rate will go in the future.
These swap rates have fallen slightly since the Budget.
Peter Stimson, director of mortgages at lender MPowered, said the current level of swap rates “suggests the market thinks we are nailed on for a December interest rate cut.”
David Hollingworth, associate director at brokers L&C Mortgages, said: “The Chancellor looks to have avoided causing any major market jitters, so borrowers should be reassured that a rapid unwinding of recent drops in mortgage rates looks unlikely.”
Mendes added: “There were no surprises in the Budget that would force markets to reprice interest rate expectations, and as a result swap rates – which determine fixed mortgage pricing – have edged down slightly across most terms in the hours since the announcement.
“For mortgage rates, that is good news. It means the recent trend of gentle reductions in mortgage rates can continue, and we may see lenders shave another few basis points off over the next week as they respond to lower funding costs.
“Nothing in the Budget signals higher rates or a change of course for the Bank of England. The direction of travel is still modest downward pressure through 2026, but at a slower, steadier pace than what we saw earlier this year.”
What to do if your fixed mortgage expires soon
Experts generally say that the best option for fixed mortgage holders who have a deal expiring in the coming months is to lock a new fixed mortgage rate in soon.
Most lenders allow you to do this several months before your current deal ends.
Then, if rates tick upwards in the meantime, you have the cheaper rate locked in.
If rates end up dropping in the meantime, you can switch on to the lower rate – making it a win-win situation.
Mendes said: “For customers coming to the end of a fixed rate in the next few months, this remains a sensible window to secure a new deal. Rates are unlikely to surge, but competition is strong and many lenders will tweak pricing again before the year is out.
“Locking in a product now, with the option to switch to something cheaper right up until completion, gives borrowers certainty without losing the chance to benefit from any near-term reductions. Waiting purely in the hope of a big drop is unlikely to pay off, because markets are already pricing in the limited number of cuts expected next year.”
David Hollingworth, of L&C Mortgages, added: “Borrowers shouldn’t be put off considering the options on offer now if they are approaching the end of their current deal. They can still review before completion if there is further improvement. Leaving it too late could even risk a drop onto a higher rate so starting the process three to four months ahead is sensible.”
What to do if you are on a variable or tracker mortgage
Some people opt to go on to variable or tracker mortgages when their fixed mortgage ends.
These can go up or down, unlike fixed mortgages which stay the same for the duration of your term.
The advantage of these mortgages is that you can often ditch them without paying a penalty if a better deal comes available, unlike with fixed options.
Rates can be higher though, and with fixed rates not expected to drop dramatically, brokers suggest that homeowners with this type of mortgage may benefit from getting a fixed deal instead, now.
Mendes explained: “For those on variable or tracker rates who have been hoping to see further reductions before they fix, the Budget does not make that scenario more likely. The Bank of England is still expected to move slowly, and with inflation proving sticky, the next cut is not guaranteed early in the new year.
“The gap between the cheapest fixed rates and typical tracker deals has widened, so the risk-reward balance now favours moving onto a fix unless someone is very comfortable with short-term volatility.”
Hollingworth added: “In a falling rate environment it’s understandable that borrowers may hold off in the hope of something better to come round the corner.
“We can’t rule out more improvements but with standard variable rates often around 7 per cent and higher it could be a costly place to be. As things stand, even a few months on standard variable rate could outweigh the benefit of a small reduction in fixed rates.”
