At last! Base rate cut is welcome news for borrowers

It’s great news for borrowers that the Bank of England monetary policy committee has finally cut the base rate by a quarter of one per cent from 5.25% to 5%.

The move brings to an end what had been an enduring 16-year high as policymakers battled to tame inflation and support a sluggish economy.

Confidence boost

It’s a huge boost for confidence in the housing market as it will ease affordability for millions of homeowners and would-be buyers stymied by high mortgage rates.

This is the first base rate reduction in more than four years.

It comes just a couple of months since the Bank’s two per cent target for consumer price index inflation was reached.

Fine judgement

The fight against inflation has been tough and we’re most likely not completely out of the woods yet, so the committee’s decision was a finely balanced judgement.

Headline inflation peaked at 11.1% in October 2022 and remained stubbornly high until this year.

Underlying inflationary pressures remain, especially in the services sector.

And in the housing market, buyers and renters continue to face high costs.

The rate at which UK rents have been rising is close to a record high, hitting 8.6% in the 12 months to June.

House prices also rose 2.2% in the year to May, with the average price of a home in England now above £300,000.

Hoping for a cut

Mortgage rates registered a peak in summer 2023 with average fixed price deals hitting 6.11%.

That compared with an average of 2.51% in July 2021 when the first of what went on to be 14 consecutive base rate rises took place.

Rates have stayed elevated for a lot longer than many people thought they would.

The result has been that prospective buyers have put back intended property moves, and homeowners have delayed mortgage and remortgage applications, all in the hope that a cut would come.

Price war

In recent months, the financial markets have begun anticipating the Bank would move to a lower base rate with some speculation that either this month, or next, would indeed see a cut.

In response, a series of lenders have been dropping the cost of their mortgages in a summer ‘price war’.

Barclays, TSB, Nationwide and Skipton have been among those cutting fixed-rate deals in recent weeks.

Brighter outlook

A time of renewed affordability means borrowers previously stretched to the limit by high mortgage costs will now see it as opportune to lock in a fixed rate, so adding to the brighter outlook for the market.

Combined with new plans to improve the planning system and unlock much-needed housing development, let’s hope the welcome base rate cut continues market confidence through the second half of this year and beyond.

If you are a homeowner, landlord, tenant or prospective seller or buyer, and want to discuss your next property move, we’re here to help. Contact us on 02392 826731 or visit www.chinneckshaw.co.uk.

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