UK House Buyers Pin Hopes on August Interest Rate Cut
As the General Election approaches, UK house buyers are holding their breath, hoping that the next interest rate decision on August 1 will bring some much-needed relief to the mortgage market. With mortgage approvals falling for the second consecutive month, it’s clear that borrowers are putting their plans on hold, waiting to see what the election will bring.
Housing market uncertainty
According to recent data, mortgage approvals for house purchases in May fell to 59,991, down from 60,821 in April. While this decrease may seem marginal, it marks the second consecutive monthly decline, indicating that potential buyers are exercising caution ahead of the election.
Remortgaging approvals also saw a slight decrease, from 29,900 to 29,600, as individuals borrowed £1.2 billion of mortgage debt in May, down from £2.2 billion in April. This decline in borrowing is largely attributed to the lingering affordability concerns and high borrowing costs.
Mortgage rates remain high
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, notes that interest rates have remained on pause at a 16-year high of 5.25% since August last year, impacting net mortgage lending and consumer confidence.
Inflation may be easing, but high borrowing costs are still making it difficult for buyers to secure the homes they want. The effective rate on newly drawn mortgages rose 5 basis points to 4.79% in May, while the rate on the outstanding stock of mortgages also rose with a 4-basis point increase to 3.61%.
All Eyes on August
As the next rate decision approaches, buyers and those looking to refinance are pinning their hopes on a potential interest rate cut. With wages increasing in real terms, a rate cut could provide the much-needed respite for households struggling with high mortgage costs.
Hopes for an interest rate cut
Jonathan Samuels, CEO of Octane Capital, believes that mortgage approval levels may have fallen marginally over the last two months, but they remain considerably higher than seen in the past, demonstrating the sector’s stability since the base rate has been held.
Jason Ferrando, founder and CEO of easyMoney, notes that mortgage market activity remains robust, with buyers continuing to act with greater intent. The expectation of an interest rate cut has led some buyers to hold out, but when such a cut materialises, it’s likely to spur these buyers to take action, driving mortgage approval numbers up once again.
As the UK housing market waits with bated breath for the next rate decision, one thing is clear: a potential interest rate cut could be the catalyst for a surge in mortgage approvals and a revitalised property market.
