With all the talk about the unexpectedly low remortgage and mortgage rates available from lenders due to the competitive lending environment that was developed around the expectation of the first MPC rate cut since 2020, the discussion is now on rate increases. Yes, increases. The expectation of the first cut spurred lenders to reduce their rates to attractive levels that could not be ignored by borrowers. After the Bank of England’s Monetary Policy Committee (MPC) voted to cut the standard base interest rate in August, rates were slashed further. Some fell below 4% despite the base rate reaching just 5.0% after the 0.25% reduction. 

Homeowners are taking advantage of the same lower cost borrowing that is fueling demand in the UK housing market. The opportunity to remortgage is not being pushed aside in favor of being transitioned to their lender’s standard variable rate (SVR) to await lower rates in which to choose a new deal. The expectation of lower rates is due to the forecasts of another cut to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPS). While there is normally a seasonal boost in remortgage lending during the autumn, it is likely the ability to obtain an lower than expected remortgage interest rate is part of the motivation to seek a new deal.

For the first time since 2021, the UK inflation rate has fallen below the target rate set by the Bank of England of 2.0%. The current inflation data which was released for the twelve months to September was reported at 1.7%. This is a sharp decline from the previous inflation report of the twelve months to September of 2.2%, slightly above target. The drop below target rate was expected to occur, but not until next year. The earlier than expected and sharp decline has given life to a strong expectation for the Bank’s Monetary Policy Committee (MPC) to cut the standard base interest rate during their next meeting in November.

The Office for National Statistics (ONS) reported the sixth month of annual increases for the average UK house price. In the year to August, the average house price had risen to £293,000 or 2.8%. The increase in demand in the housing market has been credited to lower mortgage interest rates and growth in the supply of available properties on the market. The expectation is for a continued increase in the UK average house price throughout the year as the cost of borrowing could decline even further.

There could be another cut to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPC) in November according to economists. The reason for the optimism is not that inflation will drop to the target rate set by the Bank of 2.0% because it is expected to remain slightly above target into the early part of next year. The expectation of a rate cut is due to the slowing of wage growth. The forecast is for another majority vote of the MPC to cut the base rate by 0.25% next month, which will take the rate from 5.0% to 4.75%.

As UK house price indices continue to be released, the data confirms that the housing market is doing quite well. Home buyers are hopeful in the current supply of available properties and in the opportunity to obtain a low interest rate mortgage. In addition to more choices in possible homes and cheaper borrowing rates, asking prices, while still elevated from the buying frenzy of the pandemic, seem to be reasonable with buyers. They have increased, but not to the point of shutting out many buyers or having them disengage from the market all together.