Interest Rate Cuts – What It Means For The Property Market

Following a sustained period of record high interest rates, the Bank of England have voted by a majority of five-to-four to reduce the base rate of interest from 5.25% to 5% – the first drop since the start of the COVID-19 pandemic in March 2020. The decision from the BoE to initially increase and hold rates arose from a mission to tackle sky-rocketing inflation, which peaked at 11.1% in October 2022. According to David Hannah, Group Chairman of Cornerstone Tax, this came greatly at the expense of the property market – resulting in burdensome mortgage costs for first-time buyers and long-awaited collapse in supply within the private rental sector, contributing to an unprecedented increase in rental costs.

Whilst the decision from the BoE should come as welcome news to those with their eyes on Britain’s property market, Hannah holds that more can still be done to stimulate the sector – urging the monetary policy committee to aim for a 3-3.5% base rate in order to stimulate private development, incentivise first-time buyers and restart the private rental sector.

David Hannah, Group Chairman of Cornerstone Tax, comments: 

“Today’s news from the Bank of England marks a positive step in the right direction. The monetary policy committee has recognised that a relentlessly hawkish approach has its harsh limits. Since their consecutive decisions to raise the interest rate to 5.25%, we’ve witnessed chaos in the mortgage market, dismantling the ambitions of first-time buyers. Additionally, a record number of landlords have exited the private rental sector, contributing to higher prices for tenants who once aspired to take their first step on the property ladder.

“I’d urge the MPC to continue this momentum by considering another interest rate cut in their next meeting, even a reduction by a quarter percentage point would signal further optimism within the UK economy. A target base rate of 3-3.5% should be the overall goal if the BoE want to truly prioritise prospective buyers.”

Sam Mitchell, CEO of Purplebricks, in response to the Bank of England’s decision to cut interest rates stated:

“The housing market is finally kicking back into action following a pause for breath around the General Election. The Bank of England’s decision to cut interest rates today will supercharge this recovery.

Already, buyers are leaving the market lull behind to forge ahead with purchasing decisions. However, for first-time buyers, the primary challenge remains firmly in place: the rental market is still a complete mess. Labour will need to push ahead with their plans to ‘get Britain building’ and construct more social housing if it’s to lower the barriers to homeownership for first-time buyers. The hope is that these measures, when combined with rates coming down for landlords, should make the rental market more bearable for tenants and help them save for a deposit to finally become a homeowner.”

Guy Gittins, Chief Executive Officer of Foxtons, said:

“Today’s base rate reduction will come as a welcome surprise for the nation’s homebuyers and one that will only add to the property market momentum that has been building so far in 2024.

We’ve already seen monthly mortgage approvals sitting at consistently high levels as pent-up demand across the market has been released and, in recent weeks, mortgage rates have continued to trend downwards, with several five year fixed term mortgages available with rates below four percent.

With interest rates now starting to fall, we only expect that these positive property market trends will intensify.”

Jason Ferrando, CEO of easyMoney says:

“Mortgage market activity has been building steadily so far this year and while today’s cut may be marginal, we can expect it to act as a shot in the arm for the sector and one that will spur more buyers to get off the fence and get on with their plans to purchase.

What’s more, today’s cut is likely to be the tip of the iceberg and we could well see another before the year is out, which will only help to fuel market momentum further.”

CEO of Octane Capital, Jonathan Samuels, commented:

“We’ve seen a far more settled landscape materialise since the base rate was held at the back end of last year and this stability has been key to the slow but steady recovery of the property market in 2024.

However, today’s somewhat surprising decision to cut rates for the first time since March 2020 is likely to stoke the furnaces with respect to buyer demand levels and accelerate this recovery at a greater pace than expected.

We’ve already started to see swap rates reduce in recent weeks, which suggest that mortgage rates are soon to follow, but it’s likely that many lenders will now act sooner rather than later which will help ease the cost of borrowing for the nation’s homebuyers.”

Read Molo’s commentary from Chief Commercial Officer, Mark Michaelides below:

The Bank of England’s decision to reduce interest rates to 5%, despite sticky services inflation, is significant for borrowers. This first rate cut since 2020 will have an immediate positive cash flow impact for those on tracker mortgages and could boost mortgage demand in the near to medium-term by making borrowing more affordable.

This rate cut marks a pivotal moment for the mortgage market, providing confidence to borrowers and stimulating the housing market. However, it remains to be seen whether this is a one and done cut for the next cycle or if there are further cuts to come in 2024.

Finally, Sarah Thompson, Managing Director, Mortgage Scout:

“It’s great news that the Bank of England has reduced the base rate by 0.25%. This reduction is a positive step towards stabilising the housing market and making homeownership more accessible.

“While this might not translate into significant immediate savings for all, it does improve overall affordability, especially for first-time buyers.

“Zoopla’s forecast of a 2% increase in house prices in 2024 indicates a robust market ahead​​. Additionally, some lenders, such as HSBC and Barclays, have already reduced their rates to below 4% in the last week in anticipation of the base rate cut, reflecting a proactive approach to the changing market conditions​. However, it’s important to note that despite the reduction, the bank was cautious due to ongoing concerns about wage inflation and the need to ensure inflation remains sustainably below the 2% target​.

“It’s absolutely crucial to stay informed and consult with a mortgage broker to ensure you are getting the best possible deal in these evolving conditions.”

Head of Mortgages at Mojo reveals how the base rate reduction will impact different mortgage types

John-Fraser Tucker, Head of Mortgages at online mortgage adviser Mojo Mortgages has also explained how the reduction is likely to impact mortgage borrowers.

Tracker mortgages

“If you have a tracker mortgage, the recent rate cut will immediately reduce your monthly payments. Our internal research shows that the average 2-year tracker mortgage rate has been 5.79% over the past month.

“With a 75% loan-to-value (LTV) ratio on a 25-year mortgage for an average-priced house valued at £265,600, your monthly payment would be £1,257. However, with the base rate now decreased by 5.00%, your new monthly mortgage payment would be £1,164 – a saving of £93.”

Variable rate mortgages (standard variable rate and discount deals)

“If you have a variable-rate mortgage, your lender may lower their mortgage rates in response to the base rate reduction (if they haven’t already in anticipation of the change). Since the recent stabilisation of the housing market following the General Election, many lenders, including HSBC, Barclays, and NatWest, have already begun to adjust their rates. This trend suggests that further reductions may be forthcoming, providing much-needed relief for borrowers.

Fixed-rate mortgages

“If you’re nearing the end of your fixed-rate mortgage, today’s base reduction is likely to benefit you, as it could result in cheaper fixed-rate deals becoming available.

“However, fixed mortgage rates aren’t solely determined by the base rate. Over the past year, when the base rate remained at 5.25%, average rates for two-year fixed mortgages ranged from 4.9% to 6.5%. This difference could mean a monthly payment variation of £193 on a £200,000 mortgage.

“Consulting with a mortgage adviser can help you secure the most competitive rate tailored to your circumstances.”

How fixed mortgage rates have fluctuated over the last year despite a steady base rate

After analysing their internal data, Mojo Mortgages has uncovered the average fixed mortgage rate for 2-year and 5-year fixed-rate mortgage deals for every month of the past year, despite the base rate remaining at 5.25% since August 2023.

The data is based on Mojo Mortgages’ deals available from five of the biggest UK lenders: Santander, Nationwide, NatWest, Halifax, and HSBC.

Commenting on the above table, John Fraser-Tucker, Head of Mortgages at Mojo Mortgages said: “This data paints a fascinating picture of the mortgage market’s volatility over the last year, despite the BoE’s base rate remaining unchanged until today. The significant differences in rates highlight the importance of timing and thorough research when securing a mortgage.”