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.

The rate was cut at the 1 August meeting from 5.25% to 5.0%, but as mentioned there were mortgage deals below 5% to be found from lenders. Even at rates slightly higher, there were attractive deals offered with incentives to bring buyers in before the decision of the MPC.

Nationwide reported a 2.1% annual increase in July. This is a monthly increase of 0.3%.

Experts had forecasted an increase of 1.8% annually and 0.1% monthly. The surprising data boost could inspire even better mortgage deals from lenders as the demand picks up from buyers. While lower interest rates will motivate home buyers, so will the increase of properties coming onto the UK housing market. With an increase in supply, lower interest rates, motivated buyers, and also competitive asking prices from sellers anxious to complete an agreement to sell rather than miss out on the new influx of buyers coming in, the housing market may continue to surprise experts in the months ahead.

Mortgage lending has become more competitive, but remortgaging is slightly behind. Remortgage lending rates are not as low as mortgages, but there are still deals available that could offer savings over the substantially higher cost of skipping a remortgage and being moved to a lender’s standard variable rate (SVR) when a homeowner’s mortgage term ends. Avoiding a SVR is usually the best strategy for homeowners looking for financial stress relief.

Many experts believe this is only the beginning of a slowly climbing demand from home buyers who stepped away from the market as interest rates remained high. In turn, higher demand has its pros and cons. The bad result could be that asking prices might rise to the point of shutting hopeful buyers out. House prices remain only slightly off from the highs experienced during the surge of buying during the pandemic lifestyle needs. If they rise very much from their current level, there will be buyers that are pushed out rather than stepping back on their own.

The good result from higher demand in the housing market and rising house prices is the increase in property values. As homeowners go to seek their remortgages, they will encounter, as they did when buying their home, lenders comparing their loan to value ratios or LTV. The better the ratio, the lower the risk to the lender, and therefore the better remortgage offers the homeowner will encounter. 

Nationwide reported an average house price of £266,334 in July. While higher, it is still 3% below the all time high recorded in the summer of 2022.

For homeowners and hopeful home buyers, lender rates are perhaps better than would be expected as confidence and optimism of lenders brought about competitive rates for buyers that has helped save money. Whether those rates will drop much more is uncertain as it is not known if another rate cut will occur by the MPC this year. Therefore, borrowers can feel confident in shopping from the offers available now.

The next MPC meeting will be held 19 September.