Property buyers across the UK have been waiting for this cut for most of the year, and it has finally come— a welcome development for almost everyone.

What does this mean?

In short, it means cheaper mortgage rates for everyone buying property, from homeowners to investors.

Is a mortgage rate cut a guarantee?

No, the banks may announce individually that they are cutting rates across the board following this base rate change. Typically, if one major bank announces a cut, then it is highly likely all major lenders will do the same.

How much will the base rate cut affect the average mortgage?

This will depend on if the base rate cut is passed through exactly as 0.25% to the mortgage holder. By this, I mean the bank may not cut their rate by 0.25%; they may only cut by, say, 0.15%. Every bank is a little different, and the best rate cut may be close to this.

Example: If your mortgage is worth £136,512 at a bank interest rate of 6.47%, and it is cut by 0.25% to 6.22%, then your monthly mortgage payment will go from £1,005 down to £977 (£28 cheaper).

What about fixed mortgage rates?

If you are on a fixed mortgage, then this will make no difference to you. This is the trade-off/gamble you take when choosing a fixed rate of 2, 3, or 5 years over a variable rate.

However, the indication of the base rate coming down will mean banks will encourage customers to go for longer fixed periods at what are still high mortgage rates. So, 5-10 year fixed mortgages will become the cheapest options. This is because banks want to lock you into paying a rate that is predicted to come down over the next year or two. This is in contrast to when mortgage rates were around 2%, when the banks didn’t want you to be locked in on a 5-year mortgage rate, so 5 or 10 year rates were the most expensive option.

How long will this take to make a difference?

Honestly, we are still at the early stages of this news, and we must consider that this was a drop from a 16-year high. The rates are still far higher than we have been used to in recent years.

The price effect for a mortgage rate to come down significantly is still a long way off. However, this is widely predicted to be the first rate cut among what we hope to be many. The market is still favouring cash buyers, as many are still priced out of ownership due to what is still a high mortgage rate all around.

A word from our CEO Steve Jacob

The base rate news is great news. It will give the UK market some positive sentiment, bringing buyers back into our property market. It will also reduce the cost for developers and investors which will stimulate growth within the economy. We do need to see it come down little bit further to really see the market stimulate. However, today is a win for the property market and for property investors is great news.

A word from our Managing Director, Dale Anderson

“As the Managing Director at Fabrik Property Group, the past four years have posed challenges for the UK property market due to rising borrowing rates and inflation. However, recent developments bring positive news: inflation is now stable, and interest rates are gradually declining, likely leading to a resurgence in demand this autumn.

Despite this optimism, we must remain mindful of the current geopolitical and economic landscape, as these factors could impact market conditions. “

What others are saying about the new base rate…

Iain McKenzie, CEO of The Guild of Property Professionals comments:

“Many will breathe a sigh of relief following the Bank of England’s decision to cut the rate from a 16-year high of 5.25%. The cut will have a positive impact for both mortgaged homeowners and loan-dependent prospective buyers alike.

“While headline inflation fell to the Bank’s target of 2% in May, the decision to cut the rate was delayed due to services inflation remaining stubbornly high. While services inflation is still high, the BoE is looking at the long-term and economic growth.

“Despite the elevated interest rate environment we have experienced over the past few years, a more optimistic overall economic outlook continues to have a positive impact on confidence in the market. While many adopted a wait-and-see approach in the period running up to the general election, it is expected that we should start to see transactions levels improve in the second half of the year. The rate cut should be a further shot in the arm for the market.”

Sam Mitchell, CEO of Purplebricks, said:

“The housing market is finally kicking back into action following a pause for breath around the General Election. The Bank of England’s decision to cut interest rates today will supercharge this recovery.

“Already, buyers are leaving the market lull behind to forge ahead with purchasing decisions. However, for first-time buyers, the primary challenge remains firmly in place: the rental market is still a complete mess. Labour will need to push ahead with their plans to ‘get Britain building’ and construct more social housing if it’s to lower the barriers to homeownership for first-time buyers. The hope is that these measures, when combined with rates coming down for landlords, should make the rental market more bearable for tenants and help them save for a deposit to finally become a homeowner.”

Tim Bannister, Rightmove’s property expert said:

“This year we’ve seen signs that more people have adjusted to higher mortgage rate levels and generally, if they can, have been getting on with moves. The property market has been resilient, and even through the uncertainty of the recent election campaign, we saw home-moving activity continue on trend. Whilst I wouldn’t expect today’s Base Rate cut to lead to a rush of activity – as mortgage rates are still high and won’t drop significantly in the short term – it is likely to have a positive impact on home-mover sentiment which bodes well for the Autumn selling season.”

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