The big property news of the week is that mortgage rates are falling in the UK, making property more affordable. This has opened the market up to more homebuyers and investors looking to buy at the start of a new UK property cycle.
More buyers means more confidence in the market and more competition for homes. This in turn is pushing property prices up. The latest data from the Office for National Statistics show that the average house price in the UK has now increased by 2.2% this year – exceeding expectations and reversing declines seen in 2023.
Cheaper borrowing pushing house prices up
All of this was prompted by the Bank of England’s choice to cut the base rate of interest in August, then retain that lower 5% rate in September. This affected mortgages in two ways.
Firstly, the base rate is what variable mortgage rates are based on, so a lower rate means lower interest on those products than previously. While it might not sound like a lot, that 0.25% reduction appears to have made the difference for many buyers who were otherwise unable to afford a purchase.
Secondly, the base rate affects fixed mortgage rates. These are rates which lenders are willing to bet on in the future and are determined by financial ‘swap rates’. Or to put it another way, they are based on what the market thinks will happen over the next two, five or 10 years.
How will falling mortgage rates affect the Bank of England base rate?
In practical terms, a falling base rate gives financial institutions more confidence that the Bank of England won’t raise interest rates again in the near future. Lenders are then more willing to offer lower rates of interest for years to come.
Fixed mortgage rates are based on forecasts in this way and so often move ahead of the Bank of England’s base rate. For example, before the rate was cut in August, mortgage lenders began dropping their prices on certain fixed term products in the expectation that the rate would come down.
That means we can look at what lenders are offering now to get a good indication of what the Bank of England will do in the future. If the base rate is likely to come down at the next meetings in November and December, fixed mortgage rates should be falling now.
That is exactly what’s happening. Mortgage rates have fallen in recent weeks for most types of buyers. If you have a large amount of equity – and therefore need a relatively small Loan to Value – you can even access rates under 4% again according to the i newspaper.
What do lower mortgage rates mean for property buyers?
For property buyers, that means one type of purchase offers even more benefits than normal – off-plan property for sale in or close to regional city centres.
Buying UK investment property in places like Manchester or Birmingham puts you right at the heart of the fastest growing property markets. For example, house prices in Manchester are going up more than 50% faster than the national average.
Buying off-plan where the development is still in construction also means you are likely to have access to cheaper mortgage rates than are available today.
Will the Bank of England base rate be cut again?
For the reasons discussed previously, all indications show that the Bank of England will keep cutting its base rate in the coming months and years.
The International Monetary Fund has recommended that the base rate is cut to 3.5% by the end of 2025. The Bank of England’s governor, Andrew Bailey, has similarly stated that he expects the rate to fall “gradually” over the next 18 months.
While there are no guarantees, that means rates are likely to be lower by the end of next year, and therefore so will the cost of mortgage borrowing. Buying off-plan therefore offers below-market prices and lower costs – meaning that you win at both ends of the transaction.
Want to learn more about our available off-plan UK buy to let properties for sale and how you can invest? Get in touch with our expert team today for more information.