According to the recently released data from Zoopla, house prices were on the rise last month. The strong attention on the housing market from home buyers is credited to the recent cuts in lender mortgage rates. There is also more supply of properties available on the housing market and that has led to more competition between sellers for buyers. With lower interest rates, and therefore cheaper borrowing opportunities, and more homes to consider before buying, the housing market is much more attractive towards the end of the year than the beginning.

In the start of the year, there was an expectation of a quick return of inflation to the target rate set by the Bank of England of 2.0%. Hitting the target rate would signal that inflation had been tamed by higher interest rates and therefore the standard base interest rate would likely be cut by the Bank’s Monetary Policy Committee (MPC). 

However, inflation proved to be more stubborn and the target of 2.0% was not reached early in the year and it took until May. In June, it remained at 2.0% but grew above target in July and remains so as of the last released data report at 2.2%.

In May, overall inflation had reached target, but there were sectors of the economy which were still struggling with high inflation. For instance, the service sector was at over 5.0% inflation when target was reached. The concerns of the MPC at what cutting the base rate too early would mean caused them to err on the side of caution and the first quarter and the second quarter of the year passed without a base rate cut.

The base rate of 5.25% was at a sixteen-year high, and home buyers buying with a mortgage stepped back. Cash buyers were present, but few were borrowing with mortgage rates that had grown from the start of the year and were expected to decline soon. Waiting was a smart strategy.

When the anticipation at the start of the year was for inflation to quickly reach target and the MPC would vote for a rate cut, lenders were optimistic and began cutting their lending rates. They did so rapidly, and borrowers were capable of finding rates in some cases below the Bank’s rate of 5.25%. However, when inflation did not respond as expected, lenders began to pull their best rates, and they grew quickly. 

This situation left homeowners in a financial bind more than home buyers. Home buyers were capable of stepping away and awaiting lower rates again. Homeowners that came to the end of their mortgage term and chose to wait out for lower remortgage rates learned a hard lesson. By stepping away from the ability to remortgage and allowing their lender to move them to their standard variable rate or SVR, they were stuck paying a higher rate than what they could have found with a remortgage. Then they watched as the hope for savings disappeared as lenders pulled their best rates and increased the ones they newly offered. The rush to remortgage would be necessary or stay on the SVR and pay more than necessary.

As inflation met the target rate, lenders were optimistic for a rate cut, but they did not rapidly reduce offers as they had earlier. The expectation of the MPC voting to reduce the base rate did bring about some reductions, but slowly. 

Then the MPC voted for a base rate cut in August by 0.25% to 5.0%. It was the first rate cut since March 2020. The expectation for another rate cut grew and with the first one in more than four years, lenders felt more relaxed and less at risk to lend and rates began to be cut further.

There are mortgages available below 4.0% and a second base rate cut has not yet happened and might not before the end of the year. It matters little because optimism in the economy reigns. 

The September MPC meeting resulted in a majority vote to hold the rate steady. There is not an October meeting. The next opportunity for a rate cut will be in either the November or December meetings. Inflation has grown above target to 2.2%. 

Another rate cut is likely, when it will occur no one can confidently predict. The difference between the last part of the year and the first part is that rates are optimistically lower and are expected to remain even if the MPC votes to hold the rate steady throughout 2024. With rates so low as to reflect a second base rate that has yet to happen, it is a good time to shop deals. This is so for home buyers needing a mortgage or homeowners seeking a remortgage. 

The reductions to rate offerings have slowed, even if the MPC does vote for a cut in November of another 0.25% which would be the likely amount, lender offers are not expected to drop drastically. Certainly, there will not be a return to the historically low interest rates brought about by the pandemic, but rates are unexpectedly low. This is a good thing. This means the best deals of the year are possibly already available, and with a mortgage or remortgage, there are savings to be found.