Housing market ‘set for confidence boost following base rate cut’

An autumn housing market boost is on the cards following the cut in the Bank of England’s base rate, property experts have suggested.

Homeowners on tracker mortgage rates will see their annual payments cut by more than £340 on average as a result of the base rate reduction from 5.25% to 5%.

The turning point for the base rate, after a string of previous hikes, provides a ray of light to homeowners on deals which directly track the base rate.

It will also bring some relief to those sitting on the 700,000 fixed-rate mortgage deals which are due to end in the second half of this year – equating to around 4,000 homeowners per day potentially having a rate shock when their lower-rate deal ends.

One expert described the cut as “a clear signal to the market that the Bank feels it has turned a corner in the battle against inflation”, while another said it gives “important reassurance” to borrowers who have had to contend with a volatile mortgage market in recent years.

According to industry body UK Finance, based on outstanding mortgage balances, the average tracker mortgage borrower will see their monthly payments cut by £28.44.

Someone on a standard variable rate (SVR) mortgage meanwhile will see their monthly payments fall by £14.50, assuming their lender passes on the rate cut in full. SVRs are set by lenders individually.

Thursday’s cut is the first reduction in more than four years – and while it marks a significant step, many borrowers have already seen significant increases in their mortgage costs, which will by far outweigh the reduction.

The base interest rate rose quickly from late 2021 and hit 5.25% – the highest level in 16 years – last summer.

During the string of rate hikes, borrowers on tracker mortgages have seen their average monthly payments surge by £557.42, while SVR customers have seen a typical monthly increase of around £284.12.

At the end of last year, around 6.9 million outstanding homeowner mortgages, equating to 83%, were fixed-rate, while 643,000 were trackers and 624,000 were SVR deals, UK Finance’s figures show.

Suren Thiru, economics director at chartered accountants’ body ICAEW, said: “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.”

Some lenders have already been cutting their mortgage rates in recent weeks, in anticipation of the changing market conditions.

David Hollingworth, associate director at L&C Mortgages, said: “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.

“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.

“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.”

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.

“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.”

Matt Smith, a mortgage expert at Rightmove, said: “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, said the property firm expects 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.”