The UK housing market has seen an injection of new demand from buyers due to lower interest rates offered by lenders. These lower rates were triggered by the expectation the Bank of England’s Monetary Policy Committee (MPC) would soon be lowering the standard base interest rate from its 16 year high of 5.25%. The base rate had remained steady at this level since September of last year. The lower offers on mortgages were available to borrowers prior to the majority vote by the MPC to cut the base rate on 1 August. Now that the MPC has lowered their rate, it is possible another could follow and perhaps lenders would be confident to cut their own rates again, but if not, no matter as the current rate offers are surprisingly attractive.

In a snapshot of the housing market for June, the Office for National Statistics (ONS) revealed the average house price grew by 2.7% to £288,000. This is the fifth month in a row in which there was an increase in the average house price. While the ONS data is released later than other housing market reports, it covers completed sales and is considered the more accurate insight to the market. The average house price increase from May to June amounted to 0.5%. 

First-time home buyers have had a challenging time climbing onto the property ladder. Currently there are many obstacles to becoming a homeowner. Interest rates are higher due to the Bank of England’s Monetary Policy Committee (MPC) fighting inflation following the global pandemic. The interest rate reached a 16-year high of 5.25% and was only recently cut this month for the first time since March 2020 to 5.0%. With borrowing more expensive, the repayment amounts are higher than they were when the interest rates were historically low as in 2020 to 2022.

Mortgage rates for those with low loan to value (LTV) ratios are being offered at or near 4.0% interest rates while the Bank of England’s standard base interest rate is at 5.0%. Having been cut for the first time since March 2020 by the Monetary Policy Committee (MPC) from 5.25%, the expectation alone led lenders to offer better rates on mortgages and remortgages without the decision of the MPC. Many borrowers were no doubt motivated by the decision of the MPC on 1 August and could have been totally unaware that lenders had made their own cuts weeks and days prior. Now the question is are these the best interest rates that will be offered in 2024 or will rates go lower?

Halifax is forecasting the housing market to continue to experience a rise in demand to the end of the year after it experienced a jump in July. The recently released data by Halifax for July revealed the average house price as £291,268. This is a 0.8% increase over June’s average house price of £289,042. The boost to the market is being credited to lenders reducing their interest rate offers prior to the Bank of England’s Monetary Policy Committee (MPC) meeting to consider a cut to the standard base rate. The forecasts were strong for a rate cut in August or at the latest September, and therefore lenders took the initiative and began to cut their own rate offerings with some falling below the level of the outcome of a base rate cut.

While everyone expected for home buyers to wait out for the Bank of England’s Monetary Policy Committee (MPC) to cut the standard base interest rate before returning to the market, it wasn’t necessary. The optimism for a rate cut sooner rather than later due to inflation hitting target in May led many lenders to begin to cut their lending rates as if the MPC had already had a majority vote to bring the rate down from its sixteen-year high. Mortgage rates appeared on the lending market that fell below the expected rate cut of the MPC which must have motivated buyers because UK house prices increased at the fastest annual pace since the end of 2022 according to Nationwide.