Several Mortgage Rate cuts in near future, says leadi...

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08 July 2024

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Several Mortgage Rate cuts in near future, says leading analyst

The Labour landslide victory in last week’s election won’t change the weather when it comes to mortgage rates, a leading analyst says.

Labour's housing policies, outlined in their manifesto, aim to make homeownership more accessible and ensure economic stability.

Labour plans to introduce a ‘Freedom to Buy’ mortgage guarantee scheme designed to assist first-time buyers. This initiative seeks to offer more favourable mortgage terms, making it easier for young people to enter the housing market.

Additionally, Labour intends to build 1.5m homes, to reform the planning regime, to prioritise local buyers and tax foreign buy to let purchasers to fund planning officers.

Analysts says that while Labour's housing and economic policies aim to support lower mortgage rates and greater accessibility for first-time buyers, the overall impact will depend on the market's perception and the successful implementation of their proposed policies.

Nicholas Mendes, mortgage technical manager at high profile brokerage John Charcol, says: “From our current position, we do not expect to see the volatility of recent years. With inflation expected to near the Bank of England's 2% target, Labour will be in a fortunate position to be the government in power as mortgage rates continue a downward trend.”

He says that by year-end he anticipates two rate cuts of 0.25% each, with a possibility for a third cut, reflecting an optimistic outlook for the UK economy.

Mendes continues: “The expected cuts in the Bank of England's Bank Rate are already reflected in current fixed-rate mortgage pricing. However, as the Bank Rate decreases, the market is likely to gain more confidence in the prospect of further reductions, potentially leading to additional cuts in fixed mortgage rates by around 0.5% this year.

“As lenders adjust their offerings in response to lower funding costs and increased competition, we could see even more attractive mortgage deals. This would provide significant financial relief for homeowners, encourage more first-time buyers to enter the market, and generally boost housing market activity, contributing positively to the broader economy.”

He says that next year, 2025, rates are expected to fall further, likely by around 0.5%.

“This continued decline will be influenced by the ongoing reduction in the Bank of England's Bank Rate and the stabilisation of economic conditions. As confidence in the economy grows and inflation remains under control, lenders will have more room to lower rates, resulting in even more competitive mortgage products. This downward trend in mortgage rates will not only make homeownership more accessible but also stimulate the housing market by encouraging both purchases and refinancing. Consequently, we can anticipate increased activity in the housing sector” he concludes.

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