There is speculation that two more base rate cuts might be announced before the year ends, following last week’s decrease from 5.25% to 5.0%—the first reduction in four years.
Nicholas Mendes from the independent mortgage broker John Charcol comments, “This rate cut is a positive development, offering much-needed relief and boosting confidence in the property and mortgage markets. Additionally, it’s worth noting that Governor Andrew Bailey has previously indicated that the Bank might cut rates more quickly than anticipated, suggesting the possibility of three rate cuts this year.”
Bailey was one of three members of the Bank’s monetary policy committee who changed their vote last week, resulting in a 5-4 decision in favour of the rate cut.
The cut has sparked optimism about the economic recovery. Jonathan Moyes, head of investment research at Wealth Club, notes: “An economic revival seems to be gaining momentum. Recent surveys show strong performance in the UK’s services and manufacturing sectors, low unemployment, rising house prices, and a rare period of political stability.
“With the UK making such positive progress, the interest rate cut is likely to support the recovery. However, this raises concerns about whether the Bank might unintentionally fuel inflation, which is projected to rise to 2.75% in the latter half of 2024 according to the Bank’s own forecasts.”
Emily Williams, director of research at Savills, comments: “We anticipate increased market activity in the autumn, especially if there are additional base rate cuts in the coming months. House price growth will likely remain constrained until borrowing costs decrease more significantly.
“This rate cut indicates that the Bank may have made progress in tackling inflation, which should boost confidence among buyers and sellers as we approach 2025.”
Savills projects a 2.5% increase in house prices this year, given slightly better economic conditions. Continued base rate reductions are expected to facilitate more growth from 2025 onwards. Savills predicts house prices will rise by 21.6% over the next five years, up to 2028.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The recent rate cut will help borrowers by improving affordability and easing household finances, which should benefit the broader economy. Even with the Labour Government’s plan to add 300,000 homes this year, affordability remains a major issue for first-time buyers.
“Base rate cuts will lower standard variable rates and, to some extent, headline rates, which will help with borrowing limits.
“Fixed rates, however, are influenced by future base rate changes and aren’t directly affected by this week’s cut. The rate reduction has already been reflected in mortgage rates, with several lenders recently lowering their fixed rates, including new five-year fixes available below 4%.”
Matt Smith, Rightmove’s mortgage expert, comments on the recent rate cut: “The long-awaited reduction in the base rate has finally come through. While it’s unlikely that we’ll see a dramatic decrease in mortgage rates right away, the initial signs of a downward trend are promising. We anticipate that this trend will continue, and if additional cuts to the base rate are implemented, borrowers should start noticing a more significant impact. However, it’s important to remember that mortgage rates are expected to stabilize at levels higher than those seen in the past. The prevailing market view suggests that the base rate might eventually settle around 3.25%, so while the current cut is a positive step, rates may still remain relatively elevated compared to historical lows.”
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