Interest rate cut to 4.75% while inflation rises
The base rate was cut to 4.75% on 7th November, 2024, following a widely anticipated decision at the Bank of England’s (BoE) November meeting. This is the second reduction this year after the base rate was lowered to 5% from 5.25% in August, and it’s the lowest the base rate has been in more than a year. Plus, for the first time since April, inflation rose above the BoE’s 2% target, hitting 2.3%.¹ The increase was primarily driven by higher energy costs after the energy price cap increased at the start of October.
With prices rising, the next major interest rate decision will be announced on 19th December and the chances of another cut within the month is low. The BoE’s governor, Andrew Bailey, told the BBC that rates will ‘continue to fall gradually’ while the economy adjusts to above-target inflation, Budget tax rises, and rumours of new tariffs from president-elect Trump.
Mortgage rates are rising
This is because banks price mortgages on future expectations of rates rather than today’s BoE rate. So as the BoE has signalled its rate will fall more slowly than expected in the future, banks have slightly raised their mortgage rates. If you’re wondering what this has to do with your mortgage, banks use swap rates (a key metric that lenders assess when reviewing their own interest rates) to predict future interest rate trends. These rates have recently increased (the average one-year swap rate is up by 0.03% to 4.54%), and that’s making banks a bit more cautious. If you’re due for a remortgage, it could be a good idea to speak to a Mortgage Broker so that they can search the market for the right deal for you.
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House prices drop
The latest UK House Price Index (September 2024 data released in November) showed that the average house price has dropped to £292,000. The monthly price change is -0.3%, which is down from 1.5% in the month before.² This is the first decrease after six months of consecutive increases. However, average prices are still up 2.9% year-on-year which indicates that over time, house prices and buyer demand is growing.
Although the House Price Index can lag several months behind market activity, it’s regarded as the most reliable index as it includes data for all sold properties in the UK rather than asking prices like other indices. The monthly dip could be attributed to the effects of the Autumn Budget and reduced buyer demand leading up to the Christmas period.
Rightmove provides more recent figures but they’re based on asking prices rather than sold prices on properties on its site, so they tend to be a bit less reliable. The property website reported a -1.4% monthly change in asking prices for new properties on its platform in November, which is a significantly deeper drop than usual as the average November decrease is 0.8%. But they also reported that the annual change is up 1.2%³ which confirms that longer term demand is still strong.
Despite a slight dip in the monthly house price index, possibly attributed to the post-Budget period and the usual holiday slowdown, the market is exhibiting strong, sustained growth compared to last year. This robust activity points towards a positive sentiment for 2025.
Mortgage approvals continue to rise
Mortgage approvals showed continued resilience, rising for another consecutive month of increases in October 2024 (data released in November). The number of approvals reached 68,303 – the highest in two years. In September, mortgage approvals jumped up to 65,650 from 64,960 in the month before, suggesting there’s growing buyer confidence into next year.⁴
The cut to the base rate may have contributed to the rise in mortgage approvals. With further cuts predicted in the coming year, affordability could improve, potentially leading to a more sustained recovery in mortgage approvals.
1 Source: Office of National Statistics (ONS) CPI Annual Rate of Inflation
2 Source: GOV.UK Land Registry (UK House Price Index for October 2024)
3 Source: Rightmove House Price Index, November 2024
4 Source: Trading Economics, UK Mortgage Approvals for August 2024