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Home-buying activity in the UK is expected to surge this autumn, according to analysts, after the Bank of England’s first base rate cut since 2020 injected optimism into the property market.
The central bank on Thursday reduced interest rates by a quarter of a percentage point to 5 per cent, in a knife-edge vote that boost confidence at a time when house prices are already rising at their fastest pace in almost two years.
Brokers and analysts said the decision was likely to encourage activity in the property market by helping to release pent-up demand. Mortgage rates had already started to come down in expectation of the rate cut.
“Today’s base rate cut will give buyers increasing confidence that mortgage rates are on course to return to more affordable levels, gradually improving the range of buyers in the market and their buying power,” said Emily Williams, director of research at Savills.
“We expect this to feed through into more market activity in the autumn, particularly if there are further cuts to the base rates in the coming months.”
Some commentators have predicted that buyers who had put their buying process on hold during the general election will return.
Lenders will “feel pressure” to pass on the rate cut to borrowers “and this could set the housing market up for a strong autumn selling season”, said Anthony Codling, managing director at RBC Capital Markets.
Taylor Wimpey chief executive Jennie Daly on Wednesday flagged “a degree of waiting” from prospective buyers ready to pull the trigger when borrowing rates fall.
“With every interest rate cut, we bring another potential purchaser into the market,” she told the Financial Times at the builder’s half-year results.
Lenders had been competitive in reducing rates, she observed, given the historically low volumes of business on offer. Mortgage approval rates are at about 60,000 a month, down on pre-pandemic levels.
Five-year “swap rates” — used to price mortgages fixed for the same duration — fell to 3.6 per cent immediately after the BoE decision, their lowest level since February, and down from more than 4 per cent at the start of July.
Nationwide last month became the first lender to offer a five-year fixed mortgage deal at an interest rate below 4 per cent. More lenders could follow suit and announce marginal price cuts, according to analysts.
However, experts have warned not to expect dramatic falls in mortgage prices until the benchmark rate is cut further. BoE governor Andrew Bailey said on Thursday that it needed to “make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much”.
Lloyds chief executive Charlie Nunn last week warned that mortgage prices were likely to stay “pretty stable” as expectations of interest rate cuts were already baked in to current prices.
Tom Stevenson, an investment director at Fidelity International, also warned that mortgage rates were expected to “eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25 per cent”.
Narrow margins on mortgages could leave some lenders with limited room to manoeuvre as they seek to compete on deals.
“Lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates,” said Simon Gammon, managing partner at brokerage Knight Frank Finance.
“That said, we’ve seen that the larger lenders are happy to take a hit to profits to gain market share, so we may well see another round of marginal cuts in the days ahead.”
