MORTGAGE MATTERS – AUGUST

The Bank of England cut the Bank Rate on 1 August from 5.25% to 5%, indicating confidence that inflation, which remained at the 2.0% target in June (ONS), is slowly being brought under control. This marks the first cut since the start of the pandemic in March 2020. The next bank rate review will be on 19 September, however the Governor has made it clear that he wants to proceed with caution. One or two more rate cuts are predicted before the end of 2024, while consensus forecasts suggest that the Bank Rate will be at 4.67% by the end of the year (HM Treasury Average of Independent Forecasts). This is good news for homeowners with variable mortgage rates, or those considering a move, as borrowing costs are becoming more affordable.

HSBC, one of the UK’s biggest mortgage lenders, has launched a sub-4% deal in response to similar moves by NatWest and Nationwide last week. While criteria for mortgage approval remain largely unchanged, the competitive landscape among lenders is driving rates down, giving borrowers more choice. The average five-year fixed rate mortgage is currently 5.38% and the average two-year is 5.77%, down from the highs of 6.35% and 6.86% last summer (Moneyfacts). Although lenders had been
reducing mortgage rates in the weeks prior to the interest rate drop, there is hope that further cuts will follow as lenders strive to meet their lending targets, despite August being typically a quieter month in the market.

With increasing competition between lenders, the number of mortgage deals on the market has been steadily rising over the past few months. As of 1st August there were 6,657 residential mortgage deals on the market, whereas on 1st February it stood at 5,787 (Moneyfacts).

The introduction of sub-4% mortgage rates by lenders has helped boost buyer confidence across all buyer types. While some borrowers may still be hesitant, expecting rates to drop further, it’s important to note that buyers can review and adjust to a better available rate before exchanging and completing their purchase.

Despite the added dynamic of the General Election, mortgage approvals for house purchases remained broadly stable at 60,000 in June, almost back to their long-term trend (Bank of England). As the market outlook becomes more positive, sales volume expectations for the next three months have reached their most upbeat level since January 2020 (RICS).