In August, the Bank of England (BoE) cut Bank Rate for the first time since March 2020. But what does this much awaited reduction mean for the housing and mortgage markets?
Bank Rate
Bank Rate is the interest rate that the BoE pays to commercial banks who hold money with them. This directly affects the interest rates of the high street banks that you borrow and save with. Bank Rate had been held at 5.25% for seven consecutive months to help control inflation. In August, the Monetary Policy Committee (MPC) marginally voted in favour of reducing Bank Rate to 5%, by five votes to four.
Inflation rates
The BoE’s target is to keep inflation at 2%. It peaked in October 2022, when rates hit 11.1%. In May and June of this year, inflation reached 2% but it rose slightly in July to 2.2%.
Mortgage rates
Those that have a tracker mortgage (which follows Bank Rate) will have benefitted from a small reduction in their monthly repayments after the August cut. However, mortgage holders on a fixed rate deal won’t have been affected by any changes. However, new borrowers may have noticed slightly lower rates available to them.
Tim Bannister, Rightmove’s property expert, commented, “Though optimism around the direction of mortgage rates is justified, the reality is that they are still very high compared with a few years ago, and there will be some who need rates to drop further before their affordability is notably improved.”
Housing market
The housing market has started to adapt to higher mortgage rates, with many reassured by the prediction that Bank Rate is not going to increase further. Zoopla reported, ‘The housing market is on track for 10% more homeowners moving compared to last year, and Zoopla expects average house prices to be 2% higher by the end of the year.’ Promisingly, buyers are currently paying 97% of the property’s asking price – the highest proportion in 18 months*.
Future cuts to Bank Rate?
Analysts expect that there will only be one more cut to Bank Rate this year, which they predict will be by another 0.25%. Following the August reduction, Andrew Bailey, BoE Governor warned, “We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much.” The MPC are concerned that lower interest rates will encourage consumers to spend more, thus increasing demand and causing inflation to rise again.
Here to help
We understand that it can be daunting keeping up with the changes in the economy and how they impact you. We can help you navigate the changing housing market and explain what it means for you and your mortgage. Contact us for advice today.
Your home may be repossessed if you do not keep up repayments on your mortgage
*Zoopla, 2024