In August, the Bank of England (BoE) cut Bank Rate for the first time since March 2020. But how will this long-awaited reduction impact the housing and mortgage markets? Here’s what you need to know.
What is Bank Rate?
Bank Rate is the interest rate the BoE pays to commercial banks holding money with them. It directly affects the interest rates offered by high street banks for savings and loans. For seven months, Bank Rate was held at 5.25% to control inflation. In August, the Monetary Policy Committee (MPC) narrowly voted to lower it to 5%, with a five-to-four vote split.
Inflation Trends
The BoE aims to keep inflation at 2%. Inflation peaked in October 2022 at 11.1% but fell back to 2% in May and June this year, only to edge up slightly to 2.2% in July. The BoE remains vigilant, watching inflation closely as they make decisions about future interest rates.
How Mortgage Rates Are Affected
For those on tracker mortgages, which follow Bank Rate, the recent cut resulted in a small reduction in monthly repayments. However, if you’re on a fixed-rate mortgage, you won’t have felt any immediate impact. New mortgage borrowers may have noticed slightly lower rates becoming available, but experts like Tim Bannister from Rightmove caution that rates are still much higher than in previous years, and more cuts are needed before many buyers feel a significant improvement in affordability.
Impact on the Housing Market
Despite high mortgage rates, the housing market is adapting. With reassurances that Bank Rate is unlikely to rise further, buyer confidence has returned. Zoopla reports that 10% more homeowners are expected to move this year compared to last, with average house prices projected to increase by 2%. Buyers are also paying 97% of the asking price – the highest in 18 months.
Will Bank Rate Drop Again?
Analysts predict one more cut to Bank Rate this year, potentially by another 0.25%. However, BoE Governor Andrew Bailey has cautioned against cutting rates too quickly, as lower interest rates could lead to increased consumer spending, which could push inflation back up.
We’re Here to Help
The shifting economy can be overwhelming, but we’re here to guide you through the changes and what they mean for your mortgage. If you need advice on navigating the housing market, don’t hesitate to get in touch.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Sources: Zoopla, 2024
