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Bank of England Cuts Interest Rates for the First Time in 4 Years: What Does This Mean for Your Mortgage?

LATEST NEWS | 06.08.2024

For the first time since the start of the pandemic, the Bank of England has cut interest rates in a bid to ease the pressure on households after increasing borrowing costs to try and control inflation. It was a close call with 5 of the Banks Monetary Committee voting to hold it and 4 voting to lower it. So, will these lower rates finally mean that borrowing will become easier on our finances and what does this cut have in store for UK mortgage rates?  

Why has the Bank of England Finally Decided to Cut Rates?

The main reason for Thursday’s 0.25% cut of interest rates to 5% is that inflation is finally stabilising and has followed the bank's 2% target for 2 months in a row. Another reason is that the previous high interest rate policy, which makes mortgages more expensive and slows down consumer spending, was holding back economic growth. Going forward it will require a fine balance of ensuring that inflation stays low and interest rates remain stable to ensure both the welfare of the country and to support economic growth.    

What Does this Mean for Mortgages?

Mortgages are not directly set by the Bank of England, instead, lenders will source their finance for fixed-rate mortgages in the money market, where the cost of money is influenced by the expected direction of base rates, among other things. Over the last 3 years, mortgage rates have risen and fallen between 4% and 6% for a typical 5-year fixed at 75% loan-to-value ratio. At the start of 2024, there were expectations of several cuts to base rates, which were factored into lenders’ interest rates, however, these expectations were scaled back, which is what led to a small rise above 4.5% for a 5-year fixed rate mortgage in more recent months. The cut to today’s base rate, however, means that mortgage rates are more likely to return to where they were earlier in the year, however, predictions for what will happen in 2025 will also come into play. The mortgage market will remain competitive with lenders offering a wide range of mortgage deals.  

Impact on the Housing Market and Home Buyers.

The impact on the housing market so far this year has been good. It seems those who originally put their decision to move on hold due to uncertainty have now returned to the market with the knowledge that interest rates should cease to rise. Zoopla states that “the housing market is on track for 10% more homeowners moving compared to last year, and they expect average house prices to be 2% higher by the end of the year.”  They also stated that a key sign of confidence returning to the sales market is that buyers are paying almost 97% of the asking price currently, which is the highest it’s been for almost 18 months.  

How a Trusted Mortgage Advisor in Manchester Can Help.

Utilising an experienced and reliable mortgage broker in Manchester like Taylormade can really help with this small piece of good news we’ve received. We operate throughout the UK and have the scope and experience to scour the market in search of the best deals. Our friendly, helpful advice could be just the solution you need if you find this cut difficult to navigate. So, contact TaylorMade today: we are the leading mortgage broker in Manchester, also operating throughout the UK.
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