‘Mortgage rates of 4-5% are likely to be the new norm…. it’s important would-be home movers speak to their bank or a broker to understand what they can afford – Richard Donnell, executive director of research at Zoopla
Property gurus are predicting a housing market surge this autumn, thanks to the Bank of England’s base rate cut.
Mortgage holders with tracker rates can look forward to slashing their yearly bills by an average of over £340, following the drop in the base rate from 5.25% to 5%. This pivotal moment marks a significant shift from the previous upward trend, helping those whose mortgages are tied to the base rate.
Moreover, the reduction spells good news for nearly 700,000 fixed-rate mortgage holders bracing for the end of their deals in the latter half of the year that’s about 4,000 homeowners each day who might have faced steep rises as their favourable rates expired. One industry sage hailed the cut as “a clear signal to the market that the Bank feels it has turned a corner in the battle against inflation”.
Another expert said it offers “important reassurance” to borrowers rattled by the recent erratic mortgage market. UK Finance, the voice of the finance industry, has crunched the numbers and found that the average tracker mortgage customer will see their monthly outgoings decrease by £28.44.
Those on standard variable rate (SVR) mortgages aren’t left out either; they’re set to save £14.50 per month, provided their lenders pass on the full benefit of the rate reduction. Unlike tracker mortgages, SVRs are determined individually by the lenders themselves.
Thursday’s cut marks the first time in over four years that rates have been reduced, signalling a significant move for borrowers who’ve already faced hefty hikes in their mortgage costs, dwarfing the benefits of this reduction. Interest rates had soared since late 2021, peaking at 5.25% last summer a 16-year high.
During the successive rate increases, those with tracker mortgages were hit with an average monthly payment jump of £557.42, and SVR customers experienced a typical rise of about £284.12 per month. By the close of the previous year, data from UK Finance indicated that out of approximately 6.9 million outstanding homeowner mortgages, 83% were on fixed rates, while trackers accounted for 643,000 and SVR deals for 624,000.
ICAEW’s economics director Suren Thiru commented: “While this rate cut marks a notable shift in direction, the financial reality facing households and firms won’t materially change, as this is just one step back from the previous period of 14 rate hikes.”
Ahead of the anticipated market shifts, some lenders had already started to slash their mortgage rates in recent weeks. L&C Mortgages’ associate director David Hollingworth remarked: “It’s been coming for what seems an eternity but the forecasts that base rate would come down this year have now become a reality.”
Richard Donnell, executive director of research at Zoopla, said: “The cut to the base rate will deliver a further confidence boost to the housing market rather than heralding the start of a big drop in mortgage rates. Mortgage rates have fallen this year which is why measures of market activity are all on the up.
“We are already on track for 10% more sales in 2024 and price rises of 2%. Buyers are paying almost 97% of the asking price, which is the highest level for 18 months. Today’s cut will support the current momentum in the market.”
Mr Donnell concluded: “Mortgage rates of 4-5% are likely to be the new norm and while there is headroom for borrowing costs to fall further into 2025, it’s important would-be home movers speak to their bank or a broker to understand what they can afford.”
One expert suggested that this news will have a positive impact on people planning to purchase a home. “This was far from being a nailed-on decision but market expectation that the Bank may be ready to take action has been increasingly evident in the last week. Perhaps one of the biggest boosts will be to consumer confidence, underlining that they can finally look ahead to an easing in rates, albeit potentially gradual.”
They added: “That will be important reassurance to many that have been scarred by the turbulent and volatile periods in the mortgage market over the last couple of years.”
Matt Smith, a mortgage expert at Rightmove, commented: “The highly-anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue.”
“This sets us up for hopefully further cuts to come, and when we have seen further reductions to the base rate, people should really start to see the impact. However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%.”
Emily Williams, director of research at Savills, remarked on the potential market shift: “We expect the base rate cut to feed through into more market activity in the autumn, particularly if there are further cuts to the base rates in the coming months.”
“Capacity for house price growth will remain limited until there is a more significant reduction in the cost of debt. However, this is a clear signal to the market that the Bank feels it has turned a corner in the battle against inflation, and it should give most buyers and sellers confidence that the market will improve as we head into 2025.”
“Savills has forecast house price growth to total 2.5% this year, due to slightly improved economic conditions. However, steady cuts to the base rate will open up greater capacity for growth from 2025 onwards. Savills has forecast house price growth to total 21.6% over the five years to 2028.”
Tom Bill, head of UK residential research at Knight Frank said: “Now there has been a cut, demand and transaction activity will increase when the autumn market gets underway in September and more mortgage rates fall below the 4% psychological threshold.”
