09 Aug Bank of England makes first interest rate cut since 2020

In a significant move, the Bank of England (BoE) has announced a 0.25% reduction in the Base Rate, bringing it down to 5% this month. This marks the first rate cut in four years, following a period of consistent hikes aimed at curbing high inflation.

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At Barton Wyatt, we understand how critical these changes are for our clients buying or selling in Virginia Water. Whether you’re purchasing your dream home, selling your property, or considering investment opportunities, staying informed about these economic shifts is essential, so let’s take a look at the latest news on the BoE Base Rate, inflation and mortgage rates.

A return to target inflation

Since August 2023, the Base Rate has been held steady at 5.25% after a series of 14 consecutive increases. The primary driver behind these increases was to combat inflation, which soared above 10% in early 2023, significantly overshooting the government’s 2% target. Fortunately, it was announced this June that inflation had fallen back to the target and remained stable at this level in July.

Mixed predictions and the decision-making process

There was considerable speculation regarding the BoE’s decision, with market analysts divided on whether the rate would be held steady or cut by 0.25%. This uncertainty was largely due to persistent high service inflation in June, which includes sectors like hospitality and culture, as opposed to goods typically found in consumer shopping baskets.

The BoE’s mandate involves striking a delicate balance between controlling inflation and maintaining economic stability. This rate cut indicates the BoE’s confidence in its inflation control strategy and a recognition that holding rates might negatively impact businesses and households in the long term. If you’re thinking of moving home soon, this rate cut could mean more favourable mortgage conditions for you.

Impact on mortgage rates

Earlier in the year, a spike in inflation led to rising mortgage rates. However, with inflation now stabilised at 2%, mortgage rates have become more settled. The recent political stability and competitive mortgage market have further contributed to a decrease in rates, with some lenders now offering sub-4% rates for borrowers with larger deposits.

This is excellent news for potential buyers in Virginia Water, as lower rates can make homeownership more affordable and dream homes more attainable. Currently, the average 5-year fixed mortgage rate has dropped from 6.08% in July 2023 to 4.87%, while the average 2-year fixed rate has decreased from 6.61% to 5.25%. Sellers in Virginia Water might find that lower interest rates may now attract more buyers, making the market more dynamic.

Expert insights from Rightmove

Matt Smith, a mortgage expert from Rightmove, comments on the anticipated Base Rate cut: “While those looking to take out a mortgage soon shouldn’t expect drastically lower rates immediately, the downward trend is likely to continue. Further Base Rate reductions will eventually lead to more noticeable impacts on mortgage rates. However, it’s important to note that mortgage rates are expected to stabilise at higher levels than in previous years, with the Base Rate potentially falling to around 3.25%.”

What this means for current mortgage holders

For those on fixed-rate mortgages, monthly payments will remain unchanged until the end of the current deal. However, for those on tracker or variable rate mortgages tied to the Base Rate, this reduction will lower monthly payments. If you’re coming to the end of your fixed-rate mortgage soon, now is a crucial time to consider your options.

Using tools such as a mortgage calculator can help you estimate how much you could borrow under the new rates. Applying for a Mortgage in Principle can also bring you closer to securing a favourable deal and seen as a desirable buyer. This is particularly useful for Virginia Water residents looking to either refinance or purchase a new property.

The Mortgage Charter and flexibility

Introduced in July 2023, the Mortgage Charter aims to assist those struggling with monthly payments or nearing the end of their fixed-rate deals. It encourages lenders to offer flexible options, such as locking in new deals up to six months before the current rate ends. Borrowers can also explore re-mortgaging with another lender, although this process can take longer and involves additional checks and valuations. If you feel this may benefit you, you can find out more about the Mortgage Charter on the gov.uk website.

Affordability and future rate cuts

Lenders use ‘stress test’ calculations to assess mortgage affordability, often based on Standard Variable Rates (SVRs). With the Base Rate cut, these SVRs might decrease, potentially improving affordability for borrowers. This is good news for those looking to enter the Virginia Water property market or looking to climb further up the property ladder, as it could mean more accessible financing options.

The BoE’s Monetary Policy Committee meets every six weeks to review and adjust interest rates as needed. While we are beginning to see a downward trend, it is unlikely that rates will return to the historic lows of 2021. The market forecasts another 0.25% rate cut by the end of the year, subject to broader economic conditions.

Looking ahead

The next interest rate decision will be announced on 19 September 2024. In the meantime, it’s advisable to stay informed and consult with your financial adviser to navigate these changes effectively. At Barton Wyatt, we are committed to helping our clients in Virginia Water to make informed decisions.

Whether you’re buying, selling, letting, or renting, understanding these financial changes can help you strategise for your future and make the most of the current market conditions.

If you’re considering putting your home on the market, now is the time to understand its value and how it compares in the local market. If you would like to know what your property is worth today, contact us today for a free market appraisal of your home.

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If you are thinking of moving in or out of the area, make sure you take a look at our amazing catalogue of properties for sale in Virginia Water and the surrounding areas. If you’d like to speak to someone about properties to let in Virginia Water, a member of our expert team would be happy to help. You can call us on 01344 843000 or email us. You can also follow us on Facebook, Twitter, Instagram, and LinkedIn.