Bank of England cuts base rate: What it means for mortgages and the housing market
The Bank of England has announced a cut in the base rate, reducing it by 0.25% to 5%. This marks the first reduction in 4 years. Let's take a look at what this means for mortgages and the housing market.
The Bank of England has announced a cut in the base rate, reducing it by 0.25% to 5%. This marks the first reduction in four years, following a period of 14 consecutive rate hikes aimed at controlling inflation. With inflation now back to the targeted 2%, this move signals a potential shift in borrowing costs, impacting both mortgages and the broader housing market.
Key Points:
• Base rate cut to 5% after 11 months at 5.25%
• Expected confidence boost for home buyers
• Average mortgage rates already declining in 2024
• Fixed rate mortgages to remain in the 4-5% range into 2025
Impact on Mortgages
While the base rate set by the Bank of England influences borrowing costs, mortgage rates are primarily driven by the money markets and the expected direction of base rates. Fixed-rate mortgages, which most homebuyers opt for, especially for 2 to 5-year terms, have fluctuated between 4% and 6% over the past few years due to economic uncertainties.
Current Trends in Mortgage Rates:
• Recent uptick in rates due to revised base rate cut expectations
• Potential stabilisation of rates around 4.5% for 5-year fixed terms
• First sub 4% rates seen for borrowers with larger deposits
For existing fixed-rate mortgage holders, the base rate cut won’t immediately change monthly payments. However, those on tracker or variable rate mortgages will see a direct benefit from the reduced base rate. As lenders adjust their Standard Variable Rates (SVR), affordability for new mortgages could improve, with stress test calculations potentially becoming less stringent.
Housing Market Response
The housing market has been adapting to higher mortgage rates, with the most significant impacts felt in 2023. The beginning of 2024 has shown promising signs of recovery, with more homeowners entering the market, encouraged by the stability in base rates.
Market Dynamics:
• 10% increase in homeowner moves compared to last year
• Average house prices expected to rise by 2% by year-end
• Buyers paying 97% of asking prices, highest in 18 months
Mortgage rates in the 4-5% range are becoming more manageable, aided by rising household incomes which are expected to outpace house price growth over the next 18 months. This improvement in affordability is fostering a more robust market with increased sales activity.
Competitive Mortgage Market
The mortgage market remains highly competitive, with numerous deals available from a wide array of lenders. Prospective borrowers are advised to explore various options, either directly or through mortgage brokers who can provide access to the best available deals without charging the borrower.
Future Outlook
Economists predict that the base rate might continue to edge downwards, potentially reaching 4.6%-4.7% by the end of 2025, barring any economic shocks. The next decision on interest rates is scheduled for September 19, 2024, which will further clarify the direction of monetary policy.
As always, if you have any questions or if you’d like some general advice about the Romford property market, get in touch using the details below.
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duncan.kaye@keysandlee.co.uk
Sources: Zoopla, Rightmove, BBC
Duncan has been selling homes in Romford for 23 years and helped thousands of people, couples and families move to a new home.
Having sold family homes, probate properties, off market homes and high value exclusive estates, Duncan will be able to work with you to achieve an outcome that suits your specific needs.