Whenever there is a change in government, it’s important to see how the financial markets react, as that will then impact the Monetary Policy Committee’s decision on whether to change the base rate. The most recent example of this is when Liz Truss took office in September 2022 and did her first ‘mini budget’. That caused the markets to panic and the base rate was hiked up by 1.25% over the next two months.
This time, things are looking much better! Prior to the election, the general view was that the base rate would likely be reduced from its current 5.25% at the next review on 1st August and – so far – this looks to be on track. According to most news stories, because the election result was as expected, the markets remained calm and actually had a slight uptick. And, because most experts believe that the Labour government won’t be able to expand the economy too quickly, the current inflation rate of 2% isn’t expected to change.
As such, the expectation is still that the base rate will fall to around 4.5% by the end of the year, with Capital Economics predicting it will be down to 3% by the end of 2025.
It appears that mortgage lenders are already pricing in these expected base rate reductions. The latest news is that major brands – including HSBC, Barclays, Santander, Lloyds Bank, Halifax, NatWest and Virgin Money - have reduced some of their mortgage rates, with the likes of Leeds Building Society offering a 4.99% mortgage, even at an 80% loan to value.
What should you do if you are planning to remortgage or buy a home?
Because it’s likely that the base rate is going to fall over the coming months and lenders will be looking for every opportunity to be more competitive as consumer confidence increases, it’s worth working with a mortgage broker that can keep up to date with the very latest changes.
Having a professional intermediary working on your behalf is especially important because some rates are so popular that deals can last a short time. As an individual going to a lender yourself, not only do you risk missing out on a great deal, a good mortgage broker should be able to lock in a rate for you before it disappears.
Freedom to Buy mortgage guarantee scheme
One thing to watch out for is how quickly Labour moves forward on its promise to make the current 95% mortgage guarantee scheme for first time buyers a permanent fixture. At the moment, it is due to end on 30th June next year.
There is very little information on exactly what this revamped scheme will entail, and Labour will need to agree it with lenders, so it may take a few weeks or months before we know more. As soon as we do, we’ll let you know.
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