What does the latest interest rate cut mean for home buyers and homeowners?
Today, the Bank of England cut interest rates from 5% to 4.75%.
The 0.25% cut was widely expected, but the governor of the Bank, Andrew Bailey cautioned that rates would not fall “too quickly or by too much”.
Last week’s budget included a rise in the national living wage and more borrowing, and the Bank expects that inflation will rise slightly as a result of the changes. No further rate cuts are expected this year.
How will the rate cut affect home buyers?
The interest rate cut to 4.75% is good news for home buyers. Lower rates will mean cheaper mortgages, which can lead to smaller monthly payments and make buying a home more affordable. Lenders may also offer better mortgage deals to attract new customers, allowing buyers to lock in low rates for a set period.
However, lower rates can increase competition among buyers, which might push up house prices over time. While this rate cut makes buying more affordable now, it’s wise for buyers to plan for possible future changes in rates and property prices. This is particularly true when the Bank of England has warned that rates will not continue to drop quickly.
Overall, the rate cut makes borrowing cheaper and offers new opportunities for home buyers, but careful budgeting is still important.
Will homeowners be affected by the rate cut?
Yes, many homeowners will be affected. Those with variable or tracker mortgages should see lower monthly payments, which means extra savings immediately.
Homeowners with fixed-rate mortgages won’t notice changes now, but they will benefit when it’s time to remortgage. Lower rates may offer better deals, leading to smaller payments in the future.
In short, homeowners with variable rates will see immediate benefits, while those with fixed rates may gain when renewing their mortgage. Now may be a good time to review your mortgage terms and consider remortgage options.
Should I wait to see if rates fall further?
Although the Bank’s governor, Andrew Bailey, said rates would continue to “fall gradually”, the impact of the recent budget on inflation is likely to slow the pace of cuts. Rates are now not expected to drop back to 2% until 2027.
For home buyers or those remortgaging, securing a good rate now can provide peace of mind, as fixed-rate deals keep payments steady.
If you’re not in a hurry, waiting to see the impact of the new budget on inflation will provide clues as to how far and how fast rates will drop next year. Banks are offering more attractive mortgage rates now, but you may want to hold off committing to a 5-year fixed rate now if you expect that rates will be cut again early in the new year.
Ultimately, whether to wait or make a change now depends on your finances and risk tolerance. Talking to a mortgage advisor can help you decide if now is the best time to proceed with a purchase or remortgage.
