The recent long-awaited cut in the base rate by the Bank of England was a moment many involved in the property market had been waiting for. Estate agents were poised as sellers hoped for a boost to the number of potential buyers, while many looking to buy a home were seeking a signal that mortgage costs were about to start becoming cheaper.
Since the Monetary Policy Committee (MPC) reduced the base rate from 5.25 per cent to five per cent on August 1st, there has been a major upturn in house buyer interest, according to the latest data from Rightmove.
Sales enquiries had already been on the up in July compared with the same month in 2023, up by 11 per cent. But since the rate cut the figure has jumped by another 19 per cent. This means more people looking for properties and, consequently, a better chance for those trying to sell to achieve this aim.
Part of the reason is that the base rate cut appears to be genuinely translating into lower mortgage costs as the saving is passed on by lenders. Rightmove pointed to the fact that the weeks since the rate cut has seen the cheapest mortgage rate (3.83 per cent at a 60 per cent loan-to-value) since the notorious September 2022 Budget.
However, a note of caution was sounded by Rightmove property expert Tim Bannister. He said that while the sight of mortgage rates coming down is good news, “the reality is that they are still very high compared with a few years ago, and there will be some who need rates to drop further before their affordability is notably improved.”
This reasoning would suggest that the increase in buyer enquiries is focused on those for whom even a small drop in rates is enough to feel they can now afford a mortgage.
If you are in this category, it could be a good time to move, because although you may have more rival bidders for any home you are interested in, it will be a lot fewer than it may be a few months down the line or sometime next year.
When exactly the rates will fall significantly further is a matter of speculation in which the only certainty is that the next date when the MPC will meet to decide the matter is September 19th. However, there are very good reasons to think the next cut could be a few months off.
Firstly, the MPC only just decided to cut the rate, with the 5-4 vote reflecting how delicately balanced the equation was. While on the one hand consumer price inflation had dropped to the target figure of two per cent, it is expected to rise again and the subsequent increase to 2.2 per cent last month bears this out, with a jump in energy prices expected this autumn.
Even if the rise in inflation is modest, especially in comparison with the price shock that struck in 2022, it only takes one of the five who voted for a cut to hold back next time to see rates stay at five per cent until at least the November meeting.
While mortgage rates may not fall much more soon, however, the consequence may be the market recovery is gradual and does not overheat, holding back price increases over the coming months to ensure affordability is not badly curbed.
