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.

Many lenders are offering mortgages at levels below the current base rate of 5.0%. Some are at or near 4.0%. Of course, these would be loans with low loan to value ratios such as 60% versus the usual offers shopped by first-time buyers. The fact first-time home buyers do not have access to the lowest interest rates is not a deterrent, for the current offers available on mortgages are more attractive to borrowers at a time when economic confidence is growing.

Inflation reached the target rate of 2.0% in the second quarter of the year. It has risen again, but experts believe it will remain near the target throughout the year and fall under target in 2025. With the price of goods and services not straining household budgets as much as before, many are likely to examine their current financial state and determine they are ready to be homeowners.

Getting the deposit for a purchase is difficult. Brexit caused financial strains on the economy, followed by the global pandemic, and then double-digit inflation which brought on higher borrowing rates. Many household budgets are still in a recovery phase much like the economy itself. It has been reported first-time home buyers view saving for a deposit as the largest hurdle for them in reaching homeownership.

This is where the aptly named Bank of Mum and Dad comes into play. This lender is sympathetic and in many cases offering the lowest borrowing costs available anywhere to hopeful home buyers seeking the funds for their deposit.

Recent research revealed last year parents gifted £9.4 billion to their children to help them purchase their first home. It is double the amount gifted by parents only five years ago. Of first-time home buyers, 57% received financial help from parents, other family members, or friends.

Savills reported the £9.4 billion gifted last year was proceeded by £5 billion in 2019, and £8.8 billion given in 2022. The increase could be due to the anxiousness for renters to escape rising rental fees and seeking help now that interest rates are more attractive, or it could also be that the parents, family, and friends themselves are more confident in their own financial standings to help out their children, family member, or friend.

Not since the Help to Buy scheme introduced in 2013 has more than 50% of first-time buyers reported financial help in obtaining their deposit.

House prices remain elevated from the buying boom that occurred during the global pandemic as the pandemic lifestyle of working, schooling, and staying at home for entertainment pushed the need for more space. Also, purchasing a home during the days of the pandemic was cheaper as interest rates were historically low as the MPC lowered the base rate to an all time low of almost zero at 0.1%. Now despite the cost of borrowing is now more expensive, house prices remain elevated which causes yet another obstacle to homeownership.

Homeowners have also had to deal with drastic changes in interest rates. There are homeowners that purchased as interest rates were climbing out of the pandemic low and are now coming to the end of their mortgage term. Their choice to remortgage or not has been a consideration as they pondered whether to wait out for lower interest rates to remortgage and allow their lender to transition them temporarily to their standard variable rate (SVR), which is normally much higher an interest rate than remortgage offers, or avoid the SVR and remortgage at the current rate.

Those who counted on the first MPC cut in spring would have paid out more month after month on the SVR which meant paying more than necessary as they could have remortgaged instead. Now that rates are likely for remortgaging to have reached their low or near low for the rest of the year, homeowners are expected to show increased demand for their own savings opportunities with cheaper borrowing available.

The latest inflation report released this past week revealed inflation had risen above target to 2.2%, at which it is supposed to remain for the rest of the year. The next report will be released the day before the scheduled MPC meeting of 19 September. There is less opinion that the MPC will offer another rate cut so soon with inflation again above target even if the increase was expected.

The MPC has stated they will not cut the rate too soon or too much while battling inflation after finally getting it to target. 

The lack of optimism for a sooner rather than later second rate cut in 2024 is not likely to trigger lenders to either pull back their current best deals or to spark a massively competitive lending battle to gain the attention of borrowers. This is why home buyers and homeowners should shop for their own deals soon, as the best of the year deals are likely available now.