Analysts are forecasting that the Bank of England's recent interest rate cut, announced on Thursday, will trigger reductions in mortgage rates by major banks.
This anticipated drop in rates could significantly improve affordability within the º£½ÇÊÓƵ's housing market, which has increasingly become inaccessible to younger buyers without substantial savings or familial financial assistance, as reported by .
RBC analyst Anthony Codling stated, "If homebuyers can borrow more, they most likely will," He further suggests that a decrease in mortgage rates equivalent to one per cent could be as effective for affordability as a 10 per cent reduction in house prices. "Mortgage rates may be one of the few beneficiaries of uncertainty on the outlook for global trade," Codling remarked.
Jatin Patel, Barclays' head of mortgages, also commented on the move by the Bank of England, noting it introduces "further optimism" to the property market. Juxtaposing dipping mortgage rates, soon expected to sink below four per cent, with an approaching lower energy price cap, Patel highlighted the silver lining in the current economic fluctuations: "With mortgage rates dipping below four per cent, as well as a lower energy price cap on the horizon, there are positives to be found amongst current market turbulence," he said.
Following suit, high-street banking giants HSBC, Barclays, and Lloyds have slashed their rates below four per cent since April. Notably, Lloyds Banking Group – encompassing Halifax, Bank of Scotland, and Lloyds Bank – revised its borrowing calculations to allow an additional borrowing capacity of £38,000.
Jean Jameson, chief sales officer for Foxtons, commented on the impact of the rates cut: "[The rates cut] will fuel the property market momentum that has been building over much of the last year and, with interest rates now trending downwards, we can expect to see homebuyers acting with an even greater level of confidence over the coming months,".
"With a greater degree of mortgage affordability fuelling the market, it's looking to be a very positive year and the expectation is that house prices will continue to hold firm on their current upward trajectory," Jameson added.
In April, house prices unexpectedly rose by 0.3 per cent. Estate agents had anticipated a fall following the end of the stamp duty holiday, but buyers were buoyed by sub-four per cent mortgage rates.
A note of caution
However, not all analysts are convinced that the lower interest rate will lead to lower mortgages in the immediate term. One cause for caution is the º£½ÇÊÓƵ's 10-year swap rate, which forms the basis for fixed-term mortgage rates.
A swap rate is a rate based on what the markets think interest rates will be in the future, and generally, higher swap rates mean a higher fixed mortgage rate.
Following the Bank of England's decision, the swap rate increased by just under 0.1 per cent, "probably due to the split vote", according to Laith Khalaf, head of investment analysis at AJ Bell. The committee was divided, with five members voting to cut rates to 4.25 per cent, two advocating for a larger reduction to 4 per cent, and two voting for no change.
Khalaf stated: "[The split vote] may well put a cork in the flurry of mortgage rate cuts we have seen in recent weeks, though some lenders may still have cuts in the pipeline yet to be announced. Variable rate mortgages can still be expected to fall, however,".
"Lenders may also be looking at the economic picture, in particular the potential for unemployment to rise," he added.
Although the rate increase may temporarily slow down rate cuts, experts anticipate the downward trend to resume, given that interest swap rates have generally declined this year, decreasing from a high of nearly 4.6% in early January to 4.26% on 9 May.
