Interest Rate Cut for the First Time Since 2020: What It Means for Mortgages
The Bank of England (BoE) has reduced the Base Rate to 5%, marking a 0.25% cut and the first reduction in four years. This decision follows the Base Rate holding at 5.25% since August 2023 after 14 consecutive increases aimed at controlling high inflation, which peaked at over 10% in early 2023.
Mortgage Rate Trends – Interest Rate Cut for the First Time Since 2020: What It Means for Mortgages
Earlier this year, rising inflation pushed mortgage rates up, but with inflation stabilising at 2%, mortgage rates have become more stable. Recently, some lenders have introduced sub-4% rates for borrowers with larger deposits, and further reductions are expected.
The average 5-year fixed mortgage rate has decreased from 6.08% in July 2023 to 4.87%, while the average 2-year fixed rate has dropped from 6.61% to 5.25%. For the latest mortgage rates, check our weekly updates here.
Expert Insights
Mortgage specialist Matt Smith of Rightmove notes that while the Base Rate cut won’t immediately lead to significantly lower mortgage rates, the downward trend is likely to continue. Future Base Rate reductions will have a more noticeable impact, though rates are expected to stabilise at higher levels than before.
Impact on Current Mortgages
Fixed-rate mortgage holders will see no change in payments until their current deal ends. Those on tracker or variable rate mortgages will benefit from reduced monthly payments due to the Base Rate cut.
For those nearing the end of a fixed-rate mortgage, it’s advisable to start exploring new deals early to avoid defaulting to a lender’s Standard Variable Rate (SVR), which currently averages at 8.21%. If you’re thinking of moving home soon, a good way to find out how much you could borrow is to use a mortgage calculator here is an example mortgage calculator,
Affordability and Future Rates
Lenders’ affordability calculations, or ‘stress tests,’ are linked to their SVRs. A reduction in SVRs following the Base Rate cut may improve mortgage affordability as the stressed rate decreases.
Future Interest Rate Movements – Interest Rate Cut for the First Time Since 2020: What It Means for Mortgages
The BoE’s Monetary Policy Committee reviews interest rates every six weeks. While rates are unlikely to return to 2021 lows, a gradual downward trend is expected through the rest of 2024 and into 2025, with another 0.25% cut anticipated by year-end, subject to broader economic conditions.
The next interest rate decision will be announced at 12pm on 19 September 2024. Stay informed for updates on how these changes could affect your mortgage and financial planning.
Our mortgage advisor offers comprehensive advice across the mortgage market spectrum, ensuring clients access the most cost-effective and suitable products available. Click here for more information about our mortgage advice.
Read our previous blog Unlocking the UK Mortgage Market: Latest Insights
If you’re finding it tough to manage your mortgage payments, we’ve got some positive news for you. About 90% of the major players in the mortgage market, including big banks like Halifax, HSBC, and Santander, as well as building societies like Nationwide, Leeds, and Skipton, have joined the government’s mortgage charter. Click here for full details of the Mortgage Charter.
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