The Bank of England Monetary Policy committee voted 8-1 to hold the base rate of interest at 4.5% this week – but what does that mean for property owners and buyers?
Mortgage costs will remain the same
The main point of interest for anyone who owns or wants to buy UK property is how the base rate affects mortgages. In this case, not much will change:
- Variable mortgages – The base rate is the same, so the rate will not change
- Fixed-term mortgages – The base rate is the same and has already been priced into the rates on offer
With regard to fixed rate mortgages in particular, only a major shock could change the market in the short term. Lenders will have priced current products with the likelihood of a hold in mind, so the rates we are currently seeing are what they will be for the rest of the year.
Some small lenders made a minimal cut before the announcement, but that was mainly a publicity move and won’t have a major effect.
When will mortgage rates fall?
Market analysts have been speculating for some time that the Bank will gradually reduce the base rate down to a level of 3.75% over the rest of 2025 and early 2026. That would put it a lot lower than the heights seen following the pandemic, and in line with the historic average.
Lenders know this and indications are that fixed rates will fall over the next 12-18 months in line with those cuts. Variable rates will change when the cuts are made.
While you always have to consider that the economic picture may change, that points to now being a great time to invest.
How can investors benefit most from these forecasts?
There are two ways that investors and owner-occupiers can look ahead and make the most of the predicted changes.
Firstly, the best time to buy is always now. If you can afford to purchase a property ahead of the base rate – and mortgage costs – falling, then you should. As costs go down, more people will enter the market, competition for properties will rise and that will push house prices up. If you already own one, you will earn capital appreciation faster.
Secondly, if you purchase a property off-plan you can get the best of all worlds. You will be earning capital appreciation during the construction process and benefit from the increased competition for homes as rates fall in the next year.
You will also not have to pay the balance of the purchase immediately. Instead you will pay on completion – in other words, you will be able to access those cheaper rates in the future too.
Nothing changes today, but the opportunity is still the same
The Bank choosing to hold the base rate of interest means that nothing has functionally changed for anyone buying property in the UK. The cost today is the same as the cost last week as mortgage prices will be the same.
However, the underlying facts of the UK property market are also unchanged:
- Overwhelming demand for property
- Low construction rates
- Lack of supply
- Rising house prices and rents
The sooner you invest, the sooner you can start benefitting from the overall market situation – and the Bank of England’s latest announcement does nothing to change that.
Want to know more about UK property for sale and start generating income? Contact the Alliance Investments team today to learn more.
