Base rate cut to 5% brings hope and relief
August brought some great news, in the form of the first base rate cut since 2020. The Bank of England reduced the base rate from 5.25% to 5%, providing immediate relief for some homeowners and hope for aspiring home-buyers. Financial markets are currently pricing in one more interest rate cut this year.
Fuelled by this news, as well as signs that inflation is stabilising around the government’s 2% target¹, mortgage lenders have reduced their own mortgage interest rates over the last few weeks. This has prompted a price war among major high street lenders, who are currently competing to attract customers by offering deals well below 4% for borrowers with at least a 40% deposit or equity.² We hope to see these rates become available to borrowers with smaller deposits over the coming weeks.
On a variable rate mortgage, like a tracker or your lender’s standard variable rate (SVR)? Hopefully, this change has brought some relief in the form of lower monthly repayments. If you’d prefer more stability in your finances, consider whether now is a good time to investigate a new fixed rate.
On a fixed rate mortgage? If you’re 6 months or less from the end of your current mortgage deal, now could be a good time to start shopping around for a new one. Although, you might find that rates are higher than when you last fixed your mortgage.
Buying a home soon? If you’re wondering whether to go for a tracker mortgage or a fixed rate mortgage in the current market, it’s all about personal priorities. Learn more in this guide.
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House prices slowly increase as a result
However, the impact of lower mortgage interest rates hasn’t been felt by the housing market just yet. We know that there’s a two-month lag in the most reliable dataset – the UK House Price Index – as it takes time for property transactions to be recorded with the Land Registry, which underpins this index. For instance, the latest UK House Price Index (June data released in August) showed that average house prices were only up by 0.5% in June compared to May.³ In a couple of months time, we’d expect a bigger monthly increase, as property prices should increase, with lower interest rates bringing increased demand and confidence.
The Rightmove House Price Index is a useful way to see how buyers and sellers are reacting to market conditions in real-time. Their August House Price index reveals a 19% year-on-year increase in buyer enquiries contacting estate agents about available properties, signalling improved buyer confidence following the base rate cut. On the other side of the equation, sellers have been forced to reduce asking prices during the traditionally quieter summer months, and the average asking price fell by 1.5% to £367,785.⁴
Number of mortgages approved rises
July’s mortgage approval data, released in August, showed that mortgage approvals for home purchases in the UK had increased. Approvals rose from 59,980 in June to 61,990 in July.⁵
We can mostly attribute this to anticipation of August’s base rate cut, as mortgage lenders had also begun dropping their interest rates in advance. A sharp increase in mortgage approvals next month would support this.
¹ Source: Office of National Statistics (ONS) CPI Annual Rate of Inflation
² Source: Article, Forbes Advisor UK, ‘20 August: HSBC Poised To Challenge Cheapest Five-Year Rates’
³ Source: GOV.UK Land Registry (UK House Price Index for June 2024)
⁴ Source: Rightmove House Price Index, August 2024
⁵ Source: Trading Economics, UK Mortgage Approvals for July 2024
