BANK OF ENGLAND HOLD INTEREST RATES AT 5%

Thursday September 19, 2024

Bank of England Holds Interest Rates at 5%: A Positive Outlook for the Property Market

In a decision that has sparked optimism in the UK property market, the Bank of England recently chose to maintain the base interest rate at 5%. This move is seen as a key stabilising factor, offering much-needed certainty and positivity for buyers and investors alike. For those in the property industry, including us at Auckland Estates, this rate hold signals a sustained recovery in housing activity, with more buyers likely to re-enter the market as affordability improves.

Stability in a Volatile Market

Over the past two years, UK property has faced a series of challenges. The cost of borrowing surged as inflation rose and interest rates followed suit. For many would-be buyers, particularly first-time buyers, the dream of homeownership seemed increasingly out of reach. However, the decision to keep interest rates at 5% has provided a welcome pause, and recent reductions in mortgage rates have already helped many regain confidence in the housing market.

Mortgage lenders have responded to the stabilisation of rates by offering more competitive deals. Fixed-rate mortgages have seen a significant drop, with some now available below 4%, a stark contrast to the highs experienced in the past year. This shift is beginning to filter through to buyers, who are now more optimistic about their purchasing power and the future of the property market.

Impact on Mortgage Rates

In August, the Bank of England reduced the base rate slightly from 5.25% to 5%, which gave rise to a flurry of positive activity in the mortgage market. Lenders swiftly responded, and many of them passed on the savings to customers in the form of lower mortgage rates. Now, with the base rate holding steady at 5%, buyers can expect continued downward pressure on borrowing costs.

For many potential homeowners, particularly those taking their first step onto the property ladder, the opportunity to secure a mortgage at a lower rate is a critical factor in making their purchase possible. First-time buyers, who are often the most sensitive to interest rate changes, now have more reason to believe that their goal of homeownership is attainable​.

With more affordable mortgage products entering the market, particularly in the two- and five-year fixed-rate categories, it’s becoming clear that the stability brought by this rate hold is a boon for those looking to buy in the near future. Additionally, as lenders compete for new business, there is an expectation that rates could continue to drop, albeit gradually, over the next few months.

Increased Buyer Confidence

The decision to hold the rate at 5% has had a ripple effect on buyer confidence. Over the past year, many prospective buyers delayed their plans due to fears of unaffordable mortgage rates and economic instability. However, the recent steadiness in interest rates and the possibility of further reductions have reignited interest in the housing market. As a result, estate agents across the country are reporting increased inquiries and more activity from prospective buyers who are now re-entering the market.

Nathan Emerson, CEO of Propertymark, commented on this renewed interest: “Since the initial rate cut a few months ago, many people will have been closely awaiting any further anticipated cuts. It remains crucial for the Bank of England to continue in a controlled manner, ensuring that any future base rate cuts are delivered in a way that provides long-term stability for buyers”​.

This newfound confidence is not just limited to first-time buyers. Even those looking to upgrade their homes or make a discretionary move are returning to the market. The stability brought by the rate hold has encouraged more people to assess their options and consider taking advantage of the improving mortgage conditions. As more buyers return, there is hope that the housing market will regain the momentum it needs to enter a new period of growth.

Easing Affordability Concerns

One of the major hurdles for buyers over the past few years has been affordability. High interest rates and inflation made it difficult for many to justify the cost of purchasing a home, especially in the face of rising living expenses. However, the decision to hold rates at 5% is expected to alleviate some of these concerns. With inflation showing signs of stabilising and mortgage rates continuing to drop, more buyers will find themselves in a position where homeownership is within reach​.

In particular, the Building Societies Association’s latest report revealed that affordability of mortgage payments remains the biggest barrier for buyers, with 61% citing it as a significant challenge. However, the ongoing reduction in mortgage rates and the steadiness of the base rate offer some relief. As mortgage repayments become more manageable, it is expected that more buyers will feel comfortable committing to a property purchase​.

Opportunities for First-Time Buyers

For first-time buyers, the rate hold is especially significant. Historically, this group has been the most affected by fluctuations in mortgage rates, as they typically require a larger proportion of their income to service debt. With mortgage rates beginning to fall and the base rate holding steady, first-time buyers now have a window of opportunity to secure a property before rates potentially rise again.

Additionally, the competitive mortgage market is likely to benefit this group. As lenders vie for new customers, more affordable mortgage products are becoming available, particularly in the form of fixed-rate deals. These fixed rates provide first-time buyers with the certainty they need in a still-uncertain economic climate, allowing them to plan their finances over the long term without the worry of rising payments​.

Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, highlighted the importance of stability in helping first-time buyers access the market: “The cut in the Bank Rate last month marked a significant turning point in what had been a difficult two and a half years. However, in reality, the 0.25% cut has not made a significant impact on mortgage affordability or confidence in the housing market, despite it being priced into mortgage rates”.

The Wider Market: A Bright Future for Investors

For property investors, the decision to hold interest rates at 5% offers the kind of certainty that allows for long-term planning. In a market that has experienced significant volatility, particularly in the wake of the COVID-19 pandemic and subsequent economic pressures, stability is key to encouraging investment.

As mortgage rates drop and property prices begin to stabilise, investors are likely to return to the market, seizing opportunities for growth. The rental market, which has remained strong throughout the economic turmoil, will also benefit from the increased investor confidence, as more properties become available to meet demand​.

Long-Term Growth and Economic Outlook

While the decision to maintain the rate at 5% may appear cautious, it is ultimately a positive step for the long-term health of the UK property market. By prioritising stability, the Bank of England is allowing the market to recover at a sustainable pace, avoiding the kind of rapid growth that could lead to future instability.

In the months ahead, there is speculation that the Bank of England may reduce the rate further, possibly as early as November. If this happens, it could provide an additional boost to the property market, encouraging even more buyers to enter and pushing property values higher. However, even without further cuts, the current environment of stability is expected to provide a solid foundation for continued growth​.

As we move towards the end of 2024 and into 2025, the outlook for the property market remains optimistic. With mortgage rates set to continue their downward trend and buyer confidence on the rise, the UK housing market appears well-positioned for a period of sustained recovery. For property owners and investors, this is a time to take advantage of the favourable conditions and look ahead to the opportunities that lie in store.

At Auckland Estates, we are excited about the future of the property market and the opportunities it presents for both buyers and investors. Whether you’re looking to purchase your first home or expand your property portfolio, the current market conditions offer a unique chance to make the most of improving affordability and increasing property values. Now is the time to act and secure your place in the UK’s property market recovery.