Yahoo News UK house buyers expecting August interest rate cut to reduce high mortgage costs
House buyers are pinning their hopes on interest rates being cut next month. Expensive mortgages are slowing down the property market and there are expectations that the next rate decision on Thursday, August 1, could see reduced borrowing costs if the General Election brings good news for the economy.
Mortgage approvals on house purchases for May were recorded at 59,991, down marginally from 60,821 in April. But they remain considerably higher than the 50,340 seen in May 2023. May marks the second consecutive monthly decrease as potential purchases are put on hold ahead of the election, although these monthly changes have been minimal at just -0.4% and -1.4% for April and May respectively.
Approvals for remortgaging decreased slightly from 29,900 to 29,600 over the same period. Individuals borrowed £1.2 billion of mortgage debt in May, down from £2.2 billion in April, as buyers put their finances on hold to see what the election results will mean for household budgets.
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Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said: "UK net mortgage approvals – an indicator of future borrowing – dipped in May as lingering affordability concerns caused borrowers to approach the market with caution. Interest rates have remained on pause at a 16-year high of 5.25% since August last year, something also impacting net mortgage lending, which fell in May amid wavering consumer confidence.
"Inflation may be easing, but persistently high borrowing costs are still making it hard for buyers to secure the homes they want. This was evident in the effective rate on newly drawn mortgages, which rose 5 basis points to 4.79% in May. The rate on the outstanding stock of mortgages also rose with a 4-basis point increase to 3.61%, as more people rolled off cheap fixed-rate deals secured before the BoE's rapid rate-hiking cycle began.
"Rate cut hopes have been dashed throughout 2024, which is why all eyes are on the next rate decision at the start of August when buyers and those looking to refinance are hoping for some respite. People may be seeing their wages increase in real terms, but robust pay growth is still no match for the hit from higher mortgage rates, something keeping house prices relatively stable for now."
Jonathan Samuels, CEO of Octane Capital, said: "Mortgage approval levels may have fallen marginally over the last two months, however, they remain considerably higher than we've seen for quite some time, which demonstrate that the sector is continuing to benefit from a far greater degree of stability since the base rate has been held.
"There is no doubt a 'wait and see' element at play here as well, with a segment of buyers putting their plans to purchase on temporary hold ahead of the election. So while mortgage approval levels have remained consistent of late, we expect to see further growth in these numbers as the year progresses."
Jason Ferrando, founder and CEO of easyMoney, said: "Mortgage market activity remains robust and it’s clear that buyers are continuing to act with greater intent with a fourth month of approval levels sitting around the 60,000 mark. There has been a marginal decline over the last two months and this is largely due to the expectation that an interest rate cut is imminent, with some buyers holding out in hope of lower mortgage rates.
"When such a cut does materialise, it's likely to spur these buyers to get off the fence, at which point mortgage approval numbers will start to climb once again."
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