Base Rate cut to 4.75%: but what could it mean for mortgages?
Adapted from a Rightmove, Property News article November 7, 2024
The Bank of England has announced that it will reduce the Base Rate by 0.25%, to 4.75% this month – the second reduction this year. Base Rate was held in September after being reduced in August, which had been the first drop since 2020.
The Bank meets every six weeks to decide what should happen to interest rates. With the aim of keeping inflation to its target, and keeping the wider economy healthy. It was announced in October that inflation had fallen to 1.7%, which is below the 2% target the government sets for the Bank.
The markets had been widely predicting a cut to interest rates today, as continuing to hold rates may have a negative knock-on effect on businesses and households, further down the line.
What’s happened to mortgage rates recently?
We’ve seen mixed behaviour from lenders in recent weeks, with some increasing their mortgage rates, and some decreasing. This is largely because we’ve seen quite a bit of movement in swap rates – the underlying costs of mortgages to lenders – which has meant some have needed to reprice their products to bring themselves back in line with the rest of the mortgage market.
What do the experts think?
Rightmove’s mortgage expert, Matt Smith, says: “This Base Rate decision comes at the end of a run of important macro-economic and political events on both sides of the Atlantic. All of this has resulted in a view that Base Rate will be cut at a more moderated pace than previously expected and has been priced in by lenders. Therefore we are likely to see average mortgage rates drift up a little in the short term, before starting to fall back again.”
“Today’s decision will probably help relieve pressure on lenders to increase rates as we had started to see. If the last few weeks has taught us anything, it is that the UK mortgage market remains competitive, but headline pricing will continue to be impacted by events both in the UK and overseas”, he adds.
What could happen next?
The Bank of England’s Monetary Policy Committee meets every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same
History has shown that after interest rates have increased over time, they have remained flat before starting to come down. So while we’re now seeing the beginning of the downward curve, it’s extremely unlikely that rates will drop back to the historic lows we saw back in 2021.
After the Base Rate cut in August, the markets had been forecasting a potential two further cuts before the end of 2024. However, due to other global events which are outside the Bank’s control, this has now fallen back to just one cut, which we’ve seen today. So it’s unlikely we’ll see another cut before the end of the year.
We could see Base Rate fall to around 4% in 2025, which would mean three more Base Rate cuts throughout the next year. Though as always, this could change depending on what happens in the broader economic environment.
The next decision on interest rates will be announced at 12pm on 19 December 2024.
The header image for this article was provided courtesy of Beresfords, Country and Village Estate Agents
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