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Mortgage Rates Tumble as Labour Triumphs

07.07.24

As dawn broke on Friday, Labour celebrated a resounding election victory, leaving the Conservative Party to face its worst parliamentary defeat in history.

While reactions vary across the political spectrum, there’s no doubt that mortgage holders and hopeful first-time buyers have found reason to cheer this week.

From Monday leading up to the election, major lenders including Santander, Halifax, Barclays, and HSBC, announced cuts in mortgage rates, quickly followed by others. Five-year fixed rates are now available from a shade over 4% and we could see them start with the magic number 3 before the year is out.

That said, reductions will not be sudden or fast, and over the next year there is not much expectation of too much change downwards.

These reductions, though not monumental, have been consistent and are trending downwards, improving affordability. Amanda Bryden, Halifax’s Head of Mortgages, notes that “affordability remains the biggest challenge for both homebuyers and those nearing the end of fixed-term deals.”

Market Movements

Recent weeks have seen mortgage rates fall for two main reasons. Firstly, markets are anticipating the Bank of England to lower the base rate next month – the first cut since March 2020 during the pandemic.

Secondly, the markets had already priced in a Labour victory, expecting that it would bring much-needed stability. This expectation influences gilt yields, which in turn impact mortgage rates.

Even if the base rate cut doesn’t materialise in August, a reduction in the autumn seems inevitable, particularly if upcoming inflation reports align with predictions. With inflation back at the 2% target, it’s now a matter of when, not if.

Though a modest 0.25% base rate cut to 5% is expected, it’s the signal it sends that matters. Anticipate further reductions in mortgage rates, potentially invigorating the property market as cheaper loans boost sentiment and demand.

Though one day won’t define the market over the next week or month, we did see a rise in mortgage enquiries on Monday. Having put their plans on hold, more people appear to be acting on them now and there is every likelihood that the property market will continue to improve and pick up momentum. If a rate cut does come, the pent-up demand that will be released will turn a small snowball into an avalanche of activity.

Make no mistake, though, much hangs on the shoulders of the Bank of England, with lenders waiting in the wings to charge into a competitive battle, and buyers also eager to enter the fray. A further over-cautious miss-step will leave the Governor with some serious questions to answer.

The Double-Edged Sword

However, lower mortgage rates can be a double-edged sword. While they make borrowing cheaper, they can also push house prices higher, countering the benefit for first-time buyers. Thus, those aiming to enter the market might want to act swiftly before prices escalate.

For instance, despite economic and political upheaval, average UK house prices rose by 1.6% over the year to June, according to the latest Halifax House Price Index.

Addressing Supply Issues

A significant factor in house price resilience is the limited housing stock and a deeper, systemic supply deficit.

Labour’s manifesto addresses this, promising to build 1.5 million new homes over the next parliament and to reform and invest in the planning system to achieve this. If realised, increased supply could temper house price growth, giving first-time buyers better opportunities.

Labour also plans to introduce a permanent mortgage guarantee scheme to help first-time buyers struggling to save for large deposits, alongside lower mortgage costs. Details are still forthcoming, but we’ll keep you updated.

A Whisper of Hope

For now, these pledges remain aspirational. But if Labour can deliver on its promises, we could see a more stable and accessible property market.

In the meantime, expect lenders to continue cutting rates in the lead-up to the interest rate decision on 1 August, offering some relief to those remortgaging or buying for the first time.

Whisper it softly, but we might just be on the brink of a mortgage rate war.

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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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