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%. 

The increase in demand within the housing market at that time was credited to lower mortgage rates from lenders. The competitive market in lending evolved despite the fact the Bank of England’s Monetary Policy Committee (MPC) had yet to provide the cut to the standard base interest rate that had been expected since the start of the year. 

The MPC had been increasing the base rate since December 2021 in an effort to fight inflation. By August 2023, the committee believed they had the base rate at the peak needed to bring inflation down to the target rate set by the Bank of 2.0%. Borrowers faced increases from the MPC at each consecutive meeting from December 2021 to August 2023 and they voted to keep the rate steady at 5.25% in September 2023.

The expectation of inflation getting to target had been for early spring, but it stayed stubborn and did not reach 2.0% until May which was reported in June. The June MPC meeting resulted in another majority vote to hold the rate steady.

Inflation was at target and optimism grew for a rate cut to happen soon and lenders began to cut their own rates without waiting on the MPC.

There was not an MPC meeting for July, so the next opportunity after June came in August. Lenders used the time to grab the attention of borrowers, including homeowners seeking remortgages and hopeful home buyers shopping for mortgages. By the time the MPC met on 1 August, lenders had cut rates to below the rate at which most considered the MPC would move the base rate to with a reduction of 0.25%. While the forecast was calling for the base rate to lower to 5.0%, some lenders had dropped their mortgage rates closer to 4.0%.

The boost to the housing market recorded by the ONS is likely due to lenders cutting their own rates and driving up the confidence of home buyers. The expectation of higher demand also brought sellers to the market. With both a greater supply of available properties and lower interest rates to be found, the UK housing market has seen greater demand in both inquiries as well as in purchases. 

The greatest increase in the average house price was seen in Northern Ireland with a rise of 6.4% and Scotland had a 4.3% increase. England and Wales had an average increase of 2.4% and 1.8% respectively year on year.

While there are better than expected mortgage deals available for home buyers, homeowners are reaping their own benefits from the recent uptick in economic optimism. Lenders have also cut interest rates on remortgage offers, and many are extending the terms on their fixed rate deals. 

The drawback for many homeowners is they are coming to the end of their fixed rate mortgages obtained when rates were at historic lows before the MPC began increasing them, and the rates they face now are in some cases double or more. They might be unexpectedly low considering the current base rate, but in comparison to their current or expired rate chosen only years ago the difference in borrowing cost is vast. 

The news of forecasts for the base rate to drop and lenders cutting rates has led some to believe the days of historically low interest rates offered by lenders are on the horizon. However, the remortgages and mortgages offered when the Bank’s base rate was almost zero at 0.1% during the pandemic are not going to return when an economy is healing or thriving. They were far from normal or the usual and are not expected to return.

Experts encourage all homeowners to shop for a remortgage no matter where they are in their current term. If their term has ended and they waited for the MPC to lower their rate holding out for a return to the same low rates they shopped for in 2022 or before and were moved to their lender’s standard variable rate (SVR) the benefits of remortgaging at current rates could offer a substantial savings for them.

For homeowners nearing the end of their term or perhaps at the middle or near start, shopping now can help prepare them for what they will find when their term does expire. Being aware of the impact that can occur when interest rates are higher than before allows for thoughtful planning for the future.