Today, the Bank of England has decreased the Base Rate by 0.25%. What does this decision mean for mortgage rates?
The Bank of England has decreased the Base Rate (BBR) by 0.25% to 4.75%. This is the second decrease in 2024, following fourteen consecutive increases and a year-long hold at 5.25%.
Following months of more confident and stable money markets, today’s reduction in the Base Rate was highly expected by industry experts and economists.
Inflation, too, has come down drastically. Currently at 1.7%, inflation peaked 11.1% in October 2022. This shows a much more positive outlook for the money markets and, of course, mortgage rates.
Why has the Base Rate come down?
As mentioned, prior to the lead up and subsequent post budget reaction, we had relative stability in the money markets meaning we have a positive outlook for next year. Inflation has continued to soften, despite geopolitical conflicts and their influence on various inflationary triggers.
Just one week after Labour’s Autumn Statement, this announcement comes at a pivotal time for the buy to let sector. Although the Budget announcement has triggered some money market turbulence, SWAP rates have not increased enough to reverse the long-term downward trajectory of interest rates. A relief for landlords who now face increased Stamp Duty costs when purchasing new residential properties.
We anticipate that the BBR will reduce to 3.75% by the end of 2025. Other factors, including the latest US presidential election, ongoing geopolitical activity and the new Labour government’s level of borrowing, will impact how the money markets behave next year, but the consensus is that the Base Rate will continue to reduce at a steady pace.
We strongly believe that 3.75% will be the lowest BBR decreased to over the next 12 months; however, other institutions forecast much lower rates, even 2.5%. Given the economic circumstances, this seems highly unrealistic.
What will the Base Rate Decrease mean for Mortgage rates?
It’s important to remember that BBR doesn’t directly impact mortgage rate pricing. Instead, most lenders rely on SWAP rates to price their product sets.
Since the Budget, many mortgage lenders have pulled products due to the increase in SWAP rates and bond market activity. Although new products are a few basis points more expensive than before, we’re confident these will recover and continue to soften over the coming months. To ensure you secure the most appropriate mortgage rate, it’s essential you use an independent broker like MFB.
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