Recent data shows that major high street lenders in the UK are cutting their borrowing costs following the Bank of England’s first interest rate cut in four years. This has led to a significant decrease in five-year fixed rate mortgages, with rates now dropping below the BOE’s key rate of 5%. For instance, buyers with a 40% deposit can now secure a five-year fixed rate mortgage at 3.83%, which is the lowest level seen since before the UK’s mini-Budget in September 2022. This reduction in mortgage rates comes after a previous decrease in tracker rates, aligning with the BOE’s 25-basis-point rate cut.
The lowered mortgage rates have sparked a surge in homebuyer activity in the UK. The improving economic landscape and the political certainty following the July general election have contributed to an immediate upturn in buyer interest. According to a report by property portal Rightmove, the number of house hunters contacting estate agents for viewings has increased by 19% compared to the previous year since the BOE’s rate cut. This represents a significant rise from the 11% annual increase recorded in July. Additionally, there has been a 5% increase in new sellers coming to the market, with the number of sales being agreed up by 16% from a year ago.
Tim Bannister, the director of property science at Rightmove, noted that while the decrease in mortgage rates may be modest, it has brought some relief to struggling homebuyers. He anticipates that homebuyer activity will continue to escalate throughout the autumn. Rightmove has revised its forecast for new seller asking prices, now predicting a marginal 1% increase in 2024, as opposed to the previous estimation of a 1% fall in prices. The Bank of England is set to convene on September 19 to decide on a new interest rate. Market data indicates that there is a 37% probability of a rate cut in September, with expectations rising to 74% for November.
Peter Gettins, the product manager at L&C Mortgages, highlighted that many buyers are closely monitoring the outcome of the BOE meeting for signals on the future trajectory of mortgage rates. There is a growing sentiment among prospective buyers to wait and see if rates will decrease further in the coming months. Gettins believes that another base rate cut could bolster confidence among buyers, leading to further strengthening in the housing market.
The Bank of England’s recent interest rate cut has had a significant impact on mortgage rates in the UK, prompting a surge in homebuyer activity. While the decrease in rates may be incremental, it has brought some relief to prospective buyers and sellers in the market. The upcoming BOE meeting will be closely watched for any indications of future rate cuts, which could further influence consumer behavior and market dynamics.