Good news – Bank of England Base Rate drops to 5%

After remaining at 5.25% since August last year, the Bank of England Base Rate has now been reduced to 5%, a move that will be welcomed by millions of mortgage borrowers.

Overall, it’s good news for all, with different types of borrowing being affected in various ways:
Those on Tracker deals – you may see an immediate benefit, as your interest rate should be influenced by the Base Rate reduction.
Those on Fixed Rate deals – you will not see any changes to what you pay, until you come to the end of your deal period.
Those seeking a mortgage, or looking to remortgage onto a new deal – you may benefit from lenders responding to the Base Rate decision. And, even if you’ve recently committed to a new deal, but are yet to commence, then a better rate could be on offer from the existing lender. This reinforces why regular product reviews are extremely important in this marketplace.

And whilst the Base Rate cut is a positive step, do be mindful that this was a 5:4 voting decision in favour of a reduction. Four members wanted the rate to remain at 5.25%.

The Bank of England will also be monitoring the current events in the US, where the US Federal Reserve might cut interest rates to help avoid recession. As that may influence decision-making in the UK.

A better climate

As it stands, a number of other factors have already come together in the UK to create a more encouraging environment.

A reducing level of inflation; annual UK house prices continuing to show an increase, and some enthusiasm amongst lenders to compete for your business.

Of course, for the 1.6m borrowers who will come to the end of their deal rates in 2024*, the positivity may wane slightly when they seek a new deal that is likely to be at a much higher interest rate. For example, those borrowing £100,000 over 30 years might see their monthly payments jump by around £150.
(Sources: moneyfactscompare.co.uk, 5-year fixed rate comparison, August 2024; *UK Finance, August 2023)

Lender rates

Across this year, we’ve had yo-yo periods with regard to rates on offer. The only constant has been the continuous rate changes! Most recently, we’ve seen price falls amongst a number of lenders.

Swap Rates

To some extent the fluctuating rates are down to the impact of Swaps, which have a big influence on the pricing of fixed rate mortgage deals. The rate for Swaps had been falling since the middle of last year, and had hit their lowest level in recent times at the start of 2024.

Since then, due to various market factors, Swaps had been on a slight upward path. But, most recently, partly in response to the Base Rate cut, the 2, and 5-year Swaps, for example, are back down to the levels at the start of this year (see the chart). Albeit with a slight upward movement following developments in the US.

Swaps may also fluctuate over the next few months, due to the new government, and general economic pointers both in the UK, and worldwide.
(Source: Chatham Financial, Swaps, 6 August 2024)

Political ambitions

A key objective flagged in the Labour manifesto, and echoed in the King’s Speech, is that it intends to signal the return of compulsory housing targets. And wants to see 1.5m new homes built over the next five years. The government’s also keen to help buyers get onto the property ladder, and will create a permanent mortgage guarantee scheme – Freedom to Buy. This manifesto promise aims to assist 80,000 new buyers over the next five years.

We offer so much more…

Not only are we up-to-speed on the key market developments set out here, we can also deliver support in the following areas:

There at the outset. Do talk to us early in the process, such as 6 months before your current deal period ends, and also ahead of looking to purchase a home. This is because we can provide pointers on what you may be able to borrow, in light of what’s on offer from lenders. At the same time, we can consider the affordability issues you may face, plus factor in how creditworthy you might be.

Additionally, once we take up a deal rate on your behalf (generally 4-6 months ahead of the existing one coming to an end), we can still switch it to a better rate (on a comparable plan) from the chosen lender. This option is there up until the commencement of your new mortgage deal, which means you can lock-in a deal early, and then benefit should rates improve.

Conversely, you may want to lock-in, should deals increase in the next few months.

Identify the deal that meets your needs. To achieve this, we would look at the wider marketplace.

The fact that we undertake the legwork to look elsewhere, may simply deliver the reassurance that you should remain with your existing lender.

First-Time Buyers. We’re also mindful that many of those who are renting are unlikely to escape rising costs, as landlords may pass on their extra cost of borrowing. If this prompts someone to consider purchasing their first home, then we can deliver the advice they need.

We will liaise with others on your behalf.  This covers, for example, the lender, solicitors, estate agents, and surveyors.

Whatever your situation, we’d fully assess the suitability of the options on offer. And you can take comfort from the fact that we operate in this sector day-in day-out, plus have the qualifications and expertise to deliver advice that meets your needs.

You may have to pay an early repayment charge to your existing lender if you remortgage.

 Your home may be repossessed if you do not keep up repayments on your mortgage.