Lenders are ramping up rate cuts after the Bank of England’s latest announcement

The Bank of England has announced it will hold its interest rate at 5.25% after the latest positive inflation news, and the move has boosted optimism in the housing market.

There is currently a well-documented “mortgage price war” under way in the UK, as competition has recently ramped up among lenders trying to broaden their customer base. Falling swap rates and an unexpected drop in inflation in August have both spurred banks on and have led to a much more optimistic outlook for the mortgage market.

This was the case even before the Bank of England made its decision on Thursday 21st September to leave the interest rate untouched for this month at 5.25%, which comes after 14 consecutive rate rises since the end of 2021. Back then, the Bank of England’s base rate had been held at a historic low of 0.1% for some time, and consumers had grown used to extremely competitive mortgage rates and almost nonexistent savings rates.

Will this ease affordability pressures for investors?

Cash buyers and investors, or those with the lowest loan to values (LTVs) on their properties, are of course the least affected by interest rate changes when it comes to borrowing costs, and research has found that the number of people buying property with cash has increased in recent months.

However, for those who do rely on mortgage borrowing to fund their property purchases, the latest announcement is expected to provide a level of relief that borrowing will become more affordable once more.

Lucian Cook, head of residential research at Savills, points out that the Bank of England’s latest announcement is “an important signal to the mortgage markets and should take some of the edge off the affordability pressures buyers are currently facing”.

Jason Tebb, chief executive officer of OnTheMarket, echoes this, stating: “Consecutive rate rises have exacerbated increasingly stretched affordability and done nothing for the confidence of buyers relying on mortgages. It is hoped that this pause will give buyers and sellers who had put plans on hold more confidence to transact.

“While serious buyers and sellers continue to engage with each other, it remains essential that property coming to market is priced sensibly, ideally under the guidance of an experienced agent who appreciates the nuances of their local market.”

Mortgage rates are already falling

Over the course of the last few weeks, banks and building societies have been dropping the prices of many of their fixed rate products, while also broadening their range of deals available. This has been mirrored across the buy-to-let mortgage space as well as for homeowners, and in fact one particular buy-to-let mortgage product, offered by The Mortgage Works, was the first deal below 5% for the whole mortgage sector since July.

Since this deal was announced, the likes of NatWest, Virgin Money and Yorkshire Building Society – among many others – have followed suit, with the latter two also bringing out new fixed rate deals at less than 5%.

The State Bank of India has gone a step further for buy-to-let landlords, offering the market’s first sub-4% fixed rate in many months. The product on offer is a two-year fixed rate deal for new buy-to-let customers at 3.90%, although borrowers must be able to stump up a 50% deposit and pay a 5% arrangement fee. Still, such moves are likely to spur on even more competition across the market, accelerating appetite among buyers as a result.

The expectation now is that more lenders will join the party and rates will continue to become more competitive. Of course, mortgage rates remain considerably higher than they were a year ago, and most industry insiders acknowledge that we are unlikely to see a return to the ultra-low rates of previous years. But for savvy property investors factoring this into their costs at the moment and looking at the long term, there are still plenty of lucrative property investment opportunities available.