Bank of England Base Rate Announcement: August 2024

The Bank of England have just announced a drop in interest rates. You might have some questions about what it means for you – whether you’re thinking of buying, selling or just wondering about your current mortgage. Let’s take it step by step. 

What happened with interest rates today? 

The Bank of England voted today that interest rates will decrease to 5%. The rate has stayed at 5.25% since August last year, after steadily increasing since December 2021. So, a decrease is big news. 

Why did the rate decrease? 

Interest rates are reviewed eight times a year, moving up and down (or staying the same) to help control inflation in the UK. Rates tend to rise to try and combat inflation. Higher rates encourage people to spend less, with the aim of lowering demand and bringing inflation down. But a lower rate encourages people to spend their cash to help the economy grow. So, today’s drop probably indicates that inflation is under control.  

What does it mean for the housing market? 

It depends. We can say that in general, if there are higher rates, people borrowing money for a house will end up paying more for their mortgage, as the cost of borrowing is passed on. This scenario can mean fewer people are looking to buy houses, meaning the price of homes could drop.  

In the same vein, today’s lowering of interest rates is encouraging for new buyers, as mortgages will likely become more affordable. This could mean more buyers enter the market, increasing demand, and perhaps prices too. There are a lot of other factors that impact house prices though, so we'll have to wait and see. 

Sam Mitchell, our CEO here at Purplebricks, said:

“The housing market is finally kicking back into action following a pause for breath around the General Election. The Bank of England’s decision to cut interest rates today will supercharge this recovery.

"Already, buyers are leaving the market lull behind to forge ahead with purchasing decisions. However, for first-time buyers, the primary challenge remains firmly in place: the rental market is still a complete mess. Labour will need to push ahead with their plans to ‘get Britain building’ and construct more social housing if it’s to lower the barriers to homeownership for first-time buyers. The hope is that these measures, when combined with rates coming down for landlords, should make the rental market more bearable for tenants and help them save for a deposit to finally become a homeowner.”

What does the change mean for my mortgage? 

If you’re on a fixed rate mortgage, a drop in interest rates means there won’t be any immediate change. Your rate will stay the same until your fixed term ends. 

Those on a tracker mortgage or a standard variable rate (SVR) could see immediate change, as the monthly cost tends to move in line with the Bank of England base rate. They usually have a minimum rate though, and this is generally set at the amount you were paying at the start of the deal. 

A drop in rates is good news for first-time buyers, but for people looking to remortgage, rates are still much higher than they were 2-5 years ago. If your rate is expiring soon, it could be good to talk to a lender or a broker — because the standard variable may be a lot more than what you're on now. 

What happens next time?  

The general consensus has been that rates are set to drop this year – so today’s announcement falls in line with that prediction. Nothing’s set in stone though, so we’ll keep you updated if anything does change. In the meantime, feel free to reach out – we’re here if you need us.