Interest Rate Cut for the First Time Since 2020: What It Means for Your Mortgage
This month, the Bank of England (BoE) announced a reduction in the Base Rate to 5%, a 0.25% cut marking the first decrease in four years. Since August 2023, the Base Rate had been held at 5.25% after a series of 14 consecutive hikes. The primary goal of these increases was to curb high inflation, which surpassed 10% in early 2023, significantly above the government's 2% target. Fortunately, by June, inflation had fallen back to the target level and remained steady in July.
The Impact on Mortgage Rates
Earlier this year, a rise in inflation led to increasing mortgage rates through the spring. However, with inflation stabilising at 2% over the past few months, mortgage rates have become more settled. Recently, competitive mortgage lenders and market stability have driven mortgage rates down. For instance, borrowers with larger deposits have seen the reappearance of sub-4% rates, a welcome sight after several months.
Current averages show a 5-year fixed rate dropping from 6.08% in July 2023 to 4.87% this week, while the average 2-year fixed rate has decreased from 6.61% to 5.25% in the same period.
Expert Insights
Matt Smith, a mortgage expert from Rightmove, commented: “The highly anticipated Base Rate cut has finally arrived. While drastic reductions in mortgage rates aren't expected immediately, we anticipate a continued downward trend. Future Base Rate cuts should make a more noticeable impact. However, it’s important to remember that mortgage rates are expected to eventually settle higher than past lows, with the Base Rate likely leveling out around 3.25%.”
How Does the Base Rate Reduction Affect Your Current Mortgage?
The Base Rate change impacts the interest on various loans, including mortgages. If you have a fixed-rate mortgage, your payments remain unchanged until your deal ends. However, if you have a tracker or variable-rate mortgage, your payments will decrease with this Base Rate cut.
For those nearing the end of their fixed-rate deal, it's time to consider your next steps. Moving to a new home or remortgaging can be made easier by using a mortgage calculator to understand how much you could borrow. Applying for a Mortgage in Principle can help you get closer to securing a mortgage offer.
The Mortgage Charter and Affordability
The Mortgage Charter, launched in July 2023, aims to support those struggling with payments and borrowers nearing the end of their fixed-rate terms. It encourages lenders to offer flexibility, allowing borrowers to lock in new deals up to six months before their current rate ends. While remortgaging with a new lender is an option, it involves a longer process, so planning ahead is crucial to avoid higher Standard Variable Rates (SVR), which currently average 8.21%.
Future of Interest Rates
The Bank of England’s Monetary Policy Committee meets every six weeks to review and adjust interest rates. Historically, after a period of increases, rates tend to stabilise before gradually decreasing. While we’re starting to see this downward trend, rates are unlikely to return to the historic lows of 2021. The market forecasts another 0.25% cut by the end of the year, barring any significant economic disruptions.
The next interest rate decision will be announced on September 19, 2024.
Stay Informed with Property Bee
At Property Bee, we keep you informed about the latest mortgage trends and help you navigate the complexities of the property market. While we do not offer mortgage advice directly, we work with a trusted partner who can provide the assistance you need. Whether you're buying your first home, remortgaging, or looking to invest, our expert team is here to guide you through the process. Contact us to get an introduction to our mortgage partner and receive personalised advice tailored to your needs.
Source: Rightmove. The information provided is not financial advice and should not be relied upon for making financial decisions. Always consult with a qualified mortgage advisor.
(Interest Rate Cut for the First Time Since 2020: What It Means for Your Mortgage)
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