The Bank of England will announce tomorrow whether the base rate of interest will remain at 5.25% for the eighth time in a row, or be lowered to somewhere around 5%.
Speculation has been growing that the rate will be retained one final time before a reduction in September. However, no matter whether it is lowered or kept the same, the outcome for property buyers is the same – stability and confidence in UK property is once again the new normal.
Whatever the outcome, we can see that the base rate has peaked and will decline over the next 18-to-24 months. Credible analysis suggests that it will eventually settle around 3% which is higher than the historic lows seen in the last 15 years, but far lower than the long-term average.
In practical terms, a lower base rate will lower the cost of mortgages and give buyers more confidence and ability to spend. This will in turn increase competition for homes and slowly push house prices up.
Even if the new government’s ambitious housing targets are met there will still not be enough houses to go round, and the basic rules of supply and demand will mean that the long-term trend is for house prices to start increasing again.
In fact, Zoopla reports that house prices across all regions and countries in the UK are higher than they were 12 months ago. In total the company estimates that we will see an average of 2% growth over the course of 2024, which is a substantial improvement over 2022 and 2023 when the cost of living crisis, inflation and energy insecurity led to falls in house prices.
These long-term trends towards growth make it almost irrelevant whether the Bank of England reduces the rate tomorrow or if they wait until September. A reduction is coming in the very near future and people can act accordingly.
Banks and other mortgage lenders are taking the lead here. Nationwide’s announcement of the first sub-4% mortgage rate seen for a long time in an indication of what is coming.
Everyone knows rates are declining, so lenders are moving ahead of the reduction to start offering more affordable rates to borrowers, whether they are homebuyers or investors. By doing so, they are trying to secure as much business as possible. A side effect will be other lenders following suit and offering competitive products, before long, bringing the price of all mortgages down with the expectation that interest rates will fall very soon.
The affordability of mortgages has been a big barrier for people looking to enter the market over the last two years. It is here that the falling rates and the increasing affordability of mortgages will have the greatest impact.
That means more sales, more buyers and a brighter outlook for the months and years to come.
Richard Donnell, executive director of research at Zoopla, said: "The outlook for the housing market continues to improve with more sales and buyers paying a greater proportion of the asking price. The first base rate cut will boost market sentiment and market activity over H2."
This follows a revised projection from Savills. The agency’s data now points to house prices going up 21.6% by the end of 2028 thanks to increased confidence and the greater affordability of mortgages.
Buying property is a long-term investment, but the indications are that this is an ideal time to do so at the beginning of the next cycle.
If the Bank of England decides to retain the current base rate or lower it this week, the effect is the same and the market is already moving in a positive direction with lenders leading the way.
See our available properties and get in touch with the team to learn more about where the UK property market is heading today.
