Interest Rates Cut For The First Time Since 2020: What Does That Mean For Me?
The Bank of England has cut interest rates for the first time in over four years, but how will this affect mortgage rates and the property market?
The Bank of England has announced it will cut the base rate by 0.25% this month to 5%. This is the first cut in over four years and the rate had been held at 5.25% since August 2023 after 14 consecutive rises.
The bank had been raising and holding rates to help tackle high levels of inflation which topped 10% in 2023, way above the government target of 2%. In June 2024 it was announced that it had fallen back to the target of 2% and inflation remained at the same level in July.
What has happened to mortgages recently?
January saw an unexpected rise in inflation which meant mortgage rates creeped up throughout spring. The news of reducing inflation over the last few months has seen more settled mortgage rates. That together with the end of the election and mortgage lenders competing for new business has caused mortgage rates to start to drop in the last few weeks. In fact, we saw the first sub 4% rate for many months and many lenders may follow suit in coming weeks.
What does the base rate mean for my current mortgage?
A change in the base rate can affect how much interest you will pay on loans, including your mortgage.
If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal.
And if you’re on a tracker mortgage, or a variable rate mortgage that follows Base Rate changes, this month’s Base Rate reduction will mean your monthly payments will take on this drop.
If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal. You may now be looking at better deals as mortgage lenders may reduce some of their rates.
What does this mean if I am looking to move house and for my affordability?
Firstly, lower base rates can lead to lower mortgage rates from lenders. So if you are looking to move home this may now be more affordable.
Lenders’ ‘stress test’ calculations – which is how they calculate whether someone could afford a mortgage were their repayments to jump considerably – are directly linked to the standard variable rate mortgages.
The ‘stressed rate’ is usually the lender’s SVR, with at least 1% added on top. So, if lenders’ SVRs reduce in line with this Base Rate cut, we might start to see affordability improve, because the stressed amount will now be lower than if Base Rate was at 5.25%.
Will interest rates drop further?
The Bank of England’s Monetary Policy Committee meets every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same. Right now, it’s looking more likely that, barring any shocks to the wider economy, the Base Rate will continue to edge downwards for the rest of the year and into 2025 – the market is currently forecasting one more rate cut of 0.25% by the end of the year. Though as always, this could change depending on what happens in the broader economic environment.
The next decision on interest rates will be announced at 12pm on 19 September 2024.
If you are thinking of making a move this year then get in touch with us to discuss why now might be the right time to sell or get an accurate up to date valuation.
Contact us:
Bebington Branch
0151 644 6000
lesley@lesleyhooks.co.uk
Bromborough Branch
0151 334 5875
rachael@lesleyhooks.co.uk
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*Data provided by Rightmove*