Mortgage & Economy

We lead this week’s update with the Base Rate Decision Summary. Today, the Bank of England announced a reduction in the base rate by 25 basis points, bringing it down from 4.75% to 4.5%. The decision was made by a majority vote of 7-2, with two members favouring a half-point cut. This move reflects the Bank’s response to current economic conditions, including inflation trends and economic growth forecasts.

The move will have a positive impact on the UK economy, including:

• Reduced Borrowing Costs: Lowering the base rate decreases the cost of borrowing for both individuals and businesses. This is particularly beneficial for homeowners with tracker or variable rate mortgages, as their monthly payments could decrease, thereby increasing disposable income.
• Stimulating Consumer Spending: With cheaper borrowing costs, there could be an uptick in consumer spending. People might be more inclined to take out loans for significant purchases like homes or cars or invest in home improvements, which in turn could stimulate economic activity.
• Business Investment: The rate cut could encourage businesses to invest in new projects, expand operations, or hire more staff, given that the cost of capital is lower. This could lead to job creation and further economic growth.
• Inflation Management: Although the cut might raise concerns about inflation, the decision seems to be a calculated one, aimed at nudging the economy towards the bank’s inflation target without overheating it. With inflation having been below the target in some recent months, this adjustment might help bring it closer to the 2% goal while supporting economic activity.
• Confidence Boost: The action signals the bank’s readiness to support the economy, potentially boosting confidence among consumers and investors. This could lead to a more favourable environment for investments in the UK, both domestically and internationally.
• Exchange Rate Effects: A lower interest rate might lead to a softer GBP in the short term, which could benefit exporters by making UK goods cheaper abroad. However, this needs to be balanced against any potential import cost increases.
• Housing Market: For the housing market, this could mean more activity as buying power increases. Although not a direct solution to all housing market issues, it does provide some relief to those looking to enter or move within the market.

Our thoughts:

The base rate cut is seen as a positive step for the UK economy, aiming to foster growth, increase spending, and support businesses. However, the full effects will depend on broader economic factors. It is good to see some green shoots of recovery in what has been a challenging few years for the mortgage and housing industry. We hope this momentum continues through 2025 and are expecting another 3 cuts to the base rate this year.

In other mortgage news:

• Santander for Intermediaries has made three broker pledges for this year, indicating a focus on improving their services or products for intermediaries.
• Peers are calling on the Financial Conduct Authority (FCA) to reconsider or pull back on a plan to “name and shame” firms, possibly related to regulatory compliance or performance metrics.
• Barclays launches new residential products, trims rates: Barclays has introduced new residential mortgage products while simultaneously adjusting (lowering) some of their rates, which could be in response to market conditions or competitive pressures.

To discuss everything mortgages and property finance with an FCA-regulated mortgage broker, please send an email to [email protected] or contact the Bristol head office on 0117 989 7950.