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The Bank of England’s decision to cut the base rate is a boost for the UK housing market

Q3 2024

On Thursday 1st August, the Bank of England cut the base rate for the first time since March 2020.

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Matthew Henderson

Associate Director, Residential Research

+44 (0) 7818 254017

It was a close-run decision which suggests the Bank of England will remain cautious ahead of potential future cuts. However, it is an eagerly awaited decision, and provides an encouraging signal for the housing market.

We ask three of our experts what this means for the housing market, including all-important sentiment, the house price projections, and the mortgage market.

Kate Eales, Deputy Head of Residential

This rate reduction will provide a real boost to the housing market because certainty and sentiment are the biggest drivers of activity. The 14 consecutive increases to the base rate since 2021 was a shock to the market after a prolonged period of historically low interest rates. The decision marks a departure from this period of uncertainty and buyers and sellers alike can look forward to a steadier, more robust housing market.

The UK has a resilient property market and it has remained active despite a high interest rate environment. However, there have certainly been those who have been waiting for interest rates to drop before taking steps to buy or sell. We expect there to be an increase activity from September with more people entering the market with renewed confidence.

Matt Henderson, Residential Research

In general, the market had been expecting a cut in the base rate by the end of the summer. Therefore, the cut has already been priced into many mortgage offers with the average 5-year fixed at around 4.5% (well below the pre-cut base rate of 5.25%). Nonetheless the certainty of the cut taking place should help bring rates down further and more importantly avoid the downside of rates going back up, which would likely have been the case had this cut not happened.

Falling and stable rates are a huge positive for our price sensitive housing market. The pent-up demand that had been building over the past two years – due to increasing and unstable mortgage rates – can now continue to be released into the market. So far, this year improving demand has increased house prices by 1% and we have forecast by the end of 2024 values could see growth of up to 5%.

Mark Harris, CEO, SPF

Fixed rates are influenced by future base-rate movements and therefore not directly linked to what happens this week. Indeed, this rate cut has already been factored into mortgage rates with numerous lenders reducing their fixed rates in recent days on the back of declining Swap rates, with a sub-4 per cent five-year fix now available for new purchases.

The next question is when the Bank will move again this autumn and reduce rates further, particularly with inflation expected to edge up slightly to around 2.75 per cent in the second half of the year.

Borrowers who are due to take out a mortgage before the end of the year should plan ahead as much as possible to account for higher rates. Mortgage products can be booked up to six months before needed so speak to a whole-of-market broker, such as ourselves, to find out what’s available.