Mortgage rates in the UK reached the highest levels seen for decades in 2023. The cost of living crisis, rising inflation and the Bank of England raising the base rate of interest repeatedly combined to produce mortgage rates in excess of 6.8% last year.
However, the picture in 2024 could not be more different, making this a great time for property investors from around the world who are looking to add to their UK property portfolios.
A big fall in the inflation rate – back down to 3.9% in November according to the latest Office for National Statistics figures – gave the Bank of England the confidence to stop raising the base rate of interest and hold it at 5.25%.
Even better, the Bank expects inflation to fall to its target rate of 2% by the end of 2025 and all indications are that the interest rate will begin to fall in March this year.
What does this mean for the cost of mortgages?
Put simply, lenders are responding to the forecasts by cutting their borrowing rates.
In fact, competition between lenders has caused a cascade of mortgage interest rate cuts which shows no sign of slowing.
Major lenders including NatWest, HSBC, Nationwide, Halifax, Virgin and Barclays have all cut their rates since November. The biggest cuts so far have been seen in January headlined by Nationwide which will now offer a five-year fixed rate of 3.85% for new customers and first-time buyers.
This is the lowest mortgage rate we have seen for more than eight months and it has caused considerable excitement in the market as we can begin to see a time of opportunity revealing itself ahead.
If more lenders join Nationwide, the sub-4% mortgage could become the norm sooner rather than later – and that should be of great interest to investors.
What do falling mortgage rates mean for property investors?
Property investment in the UK has never been a bad deal. Even when mortgage rates were at their highest, you could avoid the high borrowing rates by investing in off-plan property and getting a below-market price without paying the high mortgage cost. Instead, you could push that mortgage purchase into the future with the expectation that rates would fall.
Now, they are starting to fall, making investment a cheaper prospect than it was a year ago, but without the potential rental income or capital appreciation falling in turn. However, what should get investors really excited is what’s coming in the future.
As mentioned above, the Bank of England and lenders are anticipating both inflation and interest rates falling further by the end of 2025. If those predictions come to pass, they would return to something like the lowest-ever levels seen in the last two decades.
This means that you can buy property cheaper whether you are purchasing one that is complete now or you have chosen an off-plan property that is scheduled to complete in the future.
It also means that you can plan to remortgage existing properties in the future to take advantage of the lower rates that are coming to lower your costs on operational investments too.
This is a great time to invest in UK property and there are more opportunities than ever before. Lower borrowing costs now and in the future means higher potential returns for you. Want to learn more about our available investments? Browse our portfolio and get in touch with the team >>
