In the wake of the Bank of England’s first interest rate cut in four years, Britain’s major high street lenders have been aggressively reducing their borrowing costs. This move has been fueled by a surge in homebuyer activity, with lenders such as Barclays, Halifax, HSBC, and NatWest now offering five-year fixed rate mortgages of under 4%, which is below the BOE’s key rate of 5%. The current best five-year fixed rate stands at 3.83% for buyers with a 40% deposit, marking a significant decrease from the levels seen prior to the UK’s mini-Budget in September 2022.
Upturn in Buyer Activity
The rate cut has resulted in an immediate upturn in buyer activity, as indicated by the 19% increase in the number of house hunters contacting estate agents for viewings compared to a year ago. This surge follows the 25-basis-point reduction in tracker rates that aligned with the Bank’s rate cut earlier this month. With an improving economic environment and greater political certainty post the July general election, the housing market is experiencing a notable increase in new sellers coming to market, with a 5% rise compared to the previous year.
Tim Bannister, the director of property science at Rightmove, highlighted that the rate cut has brought some relief to struggling homebuyers. While mortgage rates have not significantly dropped, the psychological impact of the long-awaited rate cut has boosted sentiment among home movers. Bannister anticipates a further uptick in activity as we head into the autumn months. Rightmove has revised its prediction, now expecting new seller asking prices to marginally rise by 1% in 2024, shifting from an earlier projection of a 1% decline in prices.
Looking ahead, the Bank of England is set to meet on September 19 to make a new interest rate decision. Market expectations currently point to a 37% chance of a rate cut in September, with this likelihood rising to 74% for November, based on LSEG data. Peter Gettins, a product manager at L&C Mortgages, emphasized that many buyers will be monitoring the outcome of the meeting for clues on the future trajectory of mortgage rates. Should there be another base rate cut in the coming months, confidence in the housing market is expected to strengthen further.
The Bank of England’s rate cut has had a significant impact on mortgage rates and buyer activity in the UK housing market. While the full extent of the rate cut’s effects is yet to be seen, the initial response from lenders and buyers indicates a positive outlook for the housing sector. As we await the upcoming interest rate decision in September, all eyes will be on the Bank of England for signals on the future direction of mortgage rates.