By Matt Joy, Chief Growth Officer at Smoove Plc, the company behind eConveyancer
The Bank of England has cut interest rates for the second time this year, initially falling to 5% in August and now sitting at 4.75%. This is great news for both buyers and those remortgaging as it demonstrates the market cogs are turning in the right direction and we expect mortgage rates will drop in turn.
Indeed, according to the government’s English Housing Survey, around 600,000 homeowners have a tracker mortgage, therefore immediately benefitting from a base rate cut. It is, of course, the nature of such a product that rates entirely depend on the Bank of England’s decisions, leaving them open to the possibility of an increase down the line. But with inflation currently moving in the right direction, we can be cautiously optimistic, which is very much needed given so many borrowers are still weathering the storm of higher rates in recent years.
However, the majority of homeowners– more than 80% – have fixed-rate deals. Historically, homebuyers secured record low average rates on two and five-year fixed mortgages of 1.99% and 2.25% respectively. Some lenders offered rates below 1% as they tried to get the market moving again post lockdown. In this environment, many buyers quite rightly locked in a five-year fixed rate, protecting them from the chaos that surrounded the mini-Budget in September 2022.
As we speed towards 2025, it is likely that many of these borrowers must now think about remortgaging. Experts predict that around 800,000 fixed-rate mortgages with an interest rate of 3% or below are expected to expire every year until the end of 2027.While we must acknowledge that rates are higher for this cohort – average rates now sit at 5.42% for a two-year fixed mortgage and 5.13% for a five-year deal – the falling base rate is having the desired impact, and rates are dropping from the all-time highs we have seen in the last couple of years. However, it will, naturally, take time.
And these rates are not deterring first time buyers either. While it is true that savings may also be impacted by a falling interest rate, with a potential hit on the amount being put aside for a deposit, we are yet to see this reflected in the market. In fact, first time buyers are the largest buyer group in 2024, making up 36% of sales, followed closely by existing homeowners (31%). First time buyers are the bedrock of the housing market, so it is vital we as an industry ensure people can buy their first home and therefore support the other rungs of the ladder. With Zoopla recently confirming that the total value of homes in the sales pipeline is up by 30% when compared to last year, we look to be in a good place.
The important message now is where we go next, and how. In the recent Autumn Budget, it was fantastic to see a commitment from the Labour government to invest in building new homes and increasing affordable housing. The lesser promoted fact, though, is that the current Stamp Duty thresholds will not be extended come March 2025 – a move that is expected to create a huge rush for buyers to get their transactions over the line in the next few months. Both of these factors together, in addition to the demand from the aforementioned re-mortgagers, will undoubtedly increase pressure on the whole system and the infrastructure that sits behind the market.
We have already seen inbound calls to the sales team increase by 12% and quotes by 10%. In an effort to bring this issue to the fore and help implement long-term solutions, we are working closely with conveyancers and brokers to further streamline the homebuying process to minimise delays and deliver swift transactions whilst maintaining excellent communication throughout.
It is fair to say that there are innumerable factors that impact mortgage rates and buyers’ purchasing power – in the last week alone we have seen the first Labour Budget, and historical results from the US election that caused ripple effects across global economies. How these will filter down to the UK’s property market remains to be seen, as companies on a national scale will undoubtedly be considering how to weather the bumps ahead.
The Bank of England’s interest rate cut should rightly be viewed as a positive step, and, coupled with promising signs that the housing market is once again moving, perhaps we can look ahead to 2025 with some optimism. However, to do so necessitates putting practical measures in place that help streamline the current infrastructure that supports the market so that it can sustain activity at a higher rate and cope with pent-up demand. This is the key, and we need to come together as an industry to drive the investment needed to support the change and capitalise on a positive outlook for borrowers, re-mortgagers, conveyancers and lenders alike.
