Base Rate Cut to 4.75%

The latest decisions from the Bank of England and recent economic changes are shaping the future of the housing market, and particularly the local Harborne and Edgbaston market, with implications for buyers, sellers, and homeowners alike. As financial markets respond to rate changes, and the property market feels the impact of new policies and budget announcements, McHugo Homes is here to provide insights into how these developments could influence your next property move.

Base Rate Cut to 4.75% – What Does It Mean?
On November 7, 2024, the Bank of England announced a Base Rate cut to 4.75%, the second such reduction this year, after initially dropping the rate from 5% to 4.75%. Financial markets widely anticipated this, reflecting broad support from the Bank's Monetary Policy Committee (MPC), with all but one member in favor of this latest cut. This consensus among the MPC signals a potential shift towards a regular quarterly rate reduction cycle, an approach that could stabilize rates in the coming months.

This decision follows a series of key economic and political events, including the recent budget and U.S. election. The markets expect the Base Rate to continue lowering gradually, leading to a moderate dip in mortgage rates initially, before potentially trending downward more consistently. The Bank of England's Monetary Policy Report aligns with this cautious approach, projecting inflation to increase to 2.5% by year-end and peak at around 2.8% in Q3 of 2025. Market analysts have adjusted their forecasts, with the likelihood of a December rate cut now at 25%, down from previous expectations of 35-40%. A further 0.25% rate reduction by February is now nearly fully anticipated by the markets.

Current Mortgage Rate Trends
Mortgage rates have recently experienced mixed shifts. Some lenders raised their rates due to fluctuations in swap rates, while others have lowered them to remain competitive. On November 7, 2024, the average five-year fixed rate mortgage stood at 4.7%, slightly up from 4.64% the previous week. Meanwhile, the average two-year fixed rate mortgage increased to 4.95% from 4.91%.

Although the latest Base Rate cut hasn’t directly translated into significant mortgage rate reductions, we expect the broader positive reaction to the August 0.25% cut to encourage further market shifts. This is especially promising given that mortgage rates are at a two-year low, reviving buyer interest and boosting market activity. Forecasts suggest mortgage rates will stabilize within the 4-5% range throughout 2025, providing confidence for potential buyers and sellers alike.

Long-Term Interest Rate Projections
The Office for Budget Responsibility (OBR) recently released a five-year economic outlook. They predict the average interest rate on mortgages will climb from around 3.7% in 2024 to peak at approximately 4.5% in 2027, remaining steady thereafter. Due to the high percentage of fixed-rate mortgages (85%), rate changes typically impact homeowners gradually. In fact, around two-thirds of fixed-rate mortgages have already been repriced since the beginning of the rate hike cycle, and UK Finance projects that 1.8 million more will end next year, potentially affecting the broader housing market.

Analysts hold varying views on interest rate direction. Goldman Sachs anticipates a Base Rate drop to 2.75% by November next year, a more optimistic projection than that of the International Monetary Fund, which suggests a potential decrease to 3.5% by the end of 2025. Capital Economics forecasts a rate drop to 3% by late 2025. Savills’ predictions indicate a steady improvement over the next five years, which should encourage more people to confidently re-enter the property market.

Reactions to the Budget
On October 30, 2024, the government’s first budget since 2010 introduced several significant property-related changes. The Stamp Duty for additional homes increased from 3% to 5% as of October 31, which could impact around 20% of transactions, according to Nationwide’s data for the year ending in June 2024.

For buyers purchasing a sole residential property, the existing thresholds will remain the same until April 1, 2025. From this date, those buying their only home and who’ve owned property before will see Stamp Duty applied on amounts from £125,001 to £250,000 at a 2% rate, whereas first-time buyers will be exempt up to £300,000 and taxed 5% on the portion from £300,001 to £500,000. First-time buyers purchasing homes above £500,000 will lose all relief benefits. While these changes could potentially dampen demand and reduce transaction levels, we believe the market will show resilience, adapting to new policies.

Market Activity Following the Budget
In the week after the budget announcement, market activity showed only minor fluctuations:

• New listings decreased by 2.73%.
• Sales agreements dropped by 0.80%.
• Asking prices on agreed sales rose by 0.3%.
• Price reductions surged by 19.64%.
• Fall-throughs saw a modest increase of 0.16%.
• Sellers re-entering the market jumped by 77.34%.

These figures suggest that the budget changes haven't discouraged potential movers. In fact, the adjustments in asking prices and the significant number of sellers re-entering the market indicate seller confidence in the property sector.

Looking Ahead: The Importance of Timing in a Changing Market
With recent economic uncertainties behind us, a Base Rate cut now in effect, and changes to Stamp Duty on the horizon, we expect transaction volumes to increase through March as buyers look to capitalize on current Stamp Duty thresholds before the April deadline. For sellers, listing properties now could be advantageous, especially as average transaction times extend to 213 days, according to Rightmove.

Winter might typically see a market slowdown, but with the right pricing and marketing strategy, there’s significant pent-up demand to be met. Savvy sellers who position their properties competitively can find success during these months, helping them move sooner than expected.

What does this mean for you?
At McHugo Homes, we understand that staying informed is essential in a shifting market. Whether you’re buying or selling, our team is here to guide you through these changes with expertise and market insight. For those curious about their property’s value, we offer a FREE, no-obligation market appraisal.
Contact us at movinghome@mchugohomes.co.uk or visit McHugo Homes - Value My Property