US investors exchange rate

Interest rates cut to 4.75% as investor confidence rises

The Bank of England has lowered interest rates for the second time this year, in an encouraging sign that the Budget announcement has not knocked market confidence.

Many borrowers will be breathing a sigh of relief today as the outlook for mortgage rates improves once more, thanks to the Monetary Policy Committee’s (MPC’s) vote to bring down the base rate once more. It now sits at 4.75% after a 25bp fall from 5%, having been held at 5.25% since August last year.

The positive move in interest rates is expected to progress over the coming months, according to Bank of England governor Andrew Bailey, who said: “It is likely that interest rates will continue to fall gradually from here”. This will depend on inflation remaining close to its 2% target, which it has done in recent months.

Over the course of this year, lenders have already reduced the interest rates on their mortgages as economic confidence has improved. Mortgage holders sitting on their lender’s standard variable rate (SVR), or those on tracker rates, will see an immediate fall in their rate, while those set to secure new fixed rates soon may find some more favourable options available.

This is expected to have a positive knock-on effect on the property market, with homebuyers and property investors enjoying better borrowing environment now than a year ago, with rates already around 1% down over the last 12 months. Any boost to affordability tends to pull investors off the fence, who may have been waiting until the mortgage market improved further.

Mortgage lending is on the rise

While following house price trends and transaction numbers can certainly give a good indication of the health and the outlook of the property market, another useful measure can be to track mortgage activity, which is often linked to interest rates.

According to the Bank of England’s most recent Money and Credit Report, net mortgage lending in the UK increased by 0.9% in the year to September, which was up from 0.7% in August. This represents a boost in confidence from buyers and investors, who are willing to borrow to buy in a housing market that is showing continued resilience.

This latest cut to interest rates could see activity in the mortgage space ramp up further, with more appetite and growth in transactions between now and Christmas, just as the market would normally be slowing down.

Paresh Raja, CEO of Market Financial Solutions, reiterates this view: “The market will breathe a sigh of relief. A cut always looked likely, but the turbulence of the past week – the Budget and US election – could have encouraged the Bank of England to hold. Lenders are able to pass lower rates on to borrowers, providing a much-needed boost to homebuyers and property investors alike.

“We anticipate that the market will gain momentum in the coming weeks as it adjusts to a more accommodating – though still challenging – monetary environment.

“The past few months have provided a timely reminder that the actions of Threadneedle Street typically exert a greater influence on market activity than decisions made in Westminster. The house price growth following the Bank of England’s last rate cut in August reflects this impact, and today’s cut should inspire further confidence. It’s therefore crucial that investors prepare for a likely surge in market activity and position themselves to seize any opportunities that could soon emerge.

“However, it’s important to recognise that interest and mortgage rates remain significantly higher than pre-December 2021 levels. As a result, securing suitable financing options will still be a significant challenge for some borrowers – this is where the specialist lending sector will continue to play a vital role. To help build momentum in the property market, lenders must now step up and focus on providing a diverse range of bespoke and flexible financial products that can meet the specific needs of brokers and their clients.”

Lowered interest rates offer brighter outlook

Tim Parkes, CEO of RAW Capital Partners, shares that the Budget has not impaired market confidence, as some may have feared, which could have led to interest rates being held.

He said: “The main threat to an interest rate cut today was the fallout from the Autumn Budget. The Bank was evidently reassured enough by the reaction of the markets, although the Chancellor’s growth-focussed policies did result in an uptick in the OBR’s inflation outlook, which could have heightened tensions ahead of today’s vote on the base rate.

“Evidently the MPC does not view Reeves’ stimulus as substantial enough to justify delaying cuts, suggesting that we are in a transitionary phase where a more accommodative monetary stance is increasingly favoured on Threadneedle Street.

“Decelerating wage growth likely supports this view, though it’s important to note that the Budget may slow the pace of future cuts. Indeed, with services inflation still a persistent issue and consumer spending expected to rise over the festive season, the CPI could tick up in the coming months, potentially resulting in a slower pace of base rate cuts than previously predicted.

“That said, the bigger picture is encouraging. Any rate reduction is positive news for the lending and property markets. Although rates may never return to the historic lows seen between 2008 and 2021, they are trending in a favourable direction, making it easier for homeowners and investors to manage both current and future loans. Looking ahead to 2025, we expect specialist finance demand to grow, provided that brokers and lenders can support borrowers with the financial products and expertise they will need to navigate the changing political and economic landscapes with confidence.”

Interest rates versus swap rates

Lenders consider the central bank’s interest rates as well as swap rates when setting out their mortgage products, with swap rates typically being a reflection of how interest rates are expected to perform in the future. Swap rates actually increased after the Budget was announced, and lenders had already brought down some of their mortgage rates ahead of this.

This means the mortgage market may not be bringing interest rates down immediately, although the expected direction of travel is downwards.

However, buyers are currently finding average two-year fixed rates of 5.39%, according to Moneyfactscompare, down from 6.29% this time last year. In the five-year mortgage space, interest rates have reduced from 5.86% last November to 5.09% now, so borrowers are certainly in a better position now than they were 12 months ago when looking solely at rates.

Keep up to date with the latest property market news and trends on our news pages.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign-up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT