August’s base rate cut by the Bank of England – the first in four years – was something that all active buyers and potential buyers had been waiting for. The pain of increased mortgage rates, driven up by high interest rates, had meant that for affordability reasons many had to put their buying or moving plans on hold, forced to rent or stay put instead.
The movement in the base rate, cut from 5.25% to 5%, has begun the ball rolling on a second further cut expected by the end of the year.
Mortgage rate cuts
With anticipation building, mortgage rates had already begun to fall. Below-4% rates became a reality in the summer, far earlier than had originally been expected. Nationwide was the first to go this low at the end of July. Since then, lenders across the board have made rate cuts on their two and five-year fixed deals.
Record mortgage approvals
Mortgage approvals are also rising, likely prompted by the falling mortgage rates. At the end of August, the Bank of England reported the highest level of mortgage approvals in nearly two years with 62,000 approved in July, the highest number since 65,100 were approved in September 2022. Net borrowing of mortgage debt by individuals also increased, up to £2.8 billion in July and the highest since November 2022.
Economists also expect mortgage approvals to rise further, up to 65,000 in the next few months, as mortgage rates continue to fall in response to predicted further interest rate cuts.
But affordability will make sales challenging
These are all encouraging signs and, as we said earlier, it’s the news buyers (and sellers) have been waiting for. But buyers also have other issues to deal with. Although mortgage rates may have now fallen there are still major affordability issues around buying. Deposits still need to be found. The cost-of-living crisis of the last couple of years has hit the savings of many hard and led to financial hardship for daily living let alone saving for deposits.
The market will also remain a little nervous about the state of the economy. July saw inflation nudge higher, rising from 2% in June to 2.2% for the 12 months to July 2024. August’s inflation will be reported on 18 September.
The end of October, meanwhile, will see the release of the autumn statement by the UK government. Prime Minister Keir Starmer has already confirmed that the government will deliver a “painful” fiscal plan as it attempts to plug a £22 billion black hole in its accounts. Capital gains tax and inheritance tax could be targeted. Council tax reform is also rumoured. Any change that puts further pressure on consumer affordability could hamper house sales. How its plans will impact Scottish housebuyers will become apparent on the day.
That said the market is going in the right direction. There is likely to be no big burst of demand – instead, it’s more likely that the housing market will see a slow but steady recovery in the ability to buy and therefore an increase in sales. But recovery it will be. And that’s something buyers have long been waiting for.