Bank of England cuts base rate: what does this mean for mortgages?

The base rate has been cut for the first time in four years and now sits at 5%. Let's take a look at what this means for mortgages and the housing market.

What’s happened to the base rate? 

The Bank of England has cut the base rate by 0.25% to 5%. Base rates have been stuck at 5.25% for 11 months having risen rapidly from a low of 0.1% in November 2021. Higher base rates were needed to control inflation which is now back in line with the Bank’s target of 2%.

The decision to cut the base rate by 0.25% was finely balanced, but will be welcome news for businesses and households alike. It’s a sign that borrowing costs are likely to fall further - though how much further remains to be seen.

As we look to next year, city economists are forecasting that it’s likely the base rate will fall to 4.6%–4.7% by the end of 2025.

What does the base rate cut mean for mortgages?

The cost of a mortgage is not directly set by the Bank of England official base rate. Lenders mainly source their finance for fixed rate mortgages in the money markets. The cost of this money is influenced by the expected direction of base rates, amongst other things. Most borrowers using a mortgage to buy a property are on fixed rate loans for 2 or 5 years.

Uncertainty over the outlook for the base rate over the last 3 years has led to the mortgage rate rising and falling between 4% and 6% for a typical 5 year fixed rate at 75% loan to value (LTV). These fluctuations have been driven by financial markets and their expectations for future borrowing costs.

At the start of 2024, there were expectations of several base rate cuts over the second half of the year. These expectations have been scaled back, and this explains why average mortgage rates have risen back above 4.5% for 5 year fixed rate loans in recent months.

Today’s cut to the base rate may lead to mortgage rates returning to where they were earlier in the year. However, this depends on what the city thinks will happen to base rates into 2025.

Key takeaways

• Base rate cut to 5% after 11 months at 5.25%
• This cut is expected to deliver a confidence boost for home buyers
• Average mortgage rates have already fallen this year
• Fixed rate mortgages already factor in outlook for the base rate and are set to remain in 4-5% range into 2025

 

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by Blackstones

Are you paying too much for your mortgage?

27% of homeowners with a mortgage are on their lender’s standard variable rate. Could you be one of them?

When your mortgage deal period ends, you’ll normally move onto your lender’s standard variable rate.

A standard variable rate (or SVR) is usually a lot higher than your existing rate. Currently the average is averaging out at 8.65% across all lenders, and it can change at any time your lender decides.

Some lenders move you onto a ‘follow on’ rate instead, which can be even higher than their standard variable rate.

According to recent research by mortgage broker Habito, one in 10 mortgagees believe that paying a more expensive rate on their mortgage meant they’d be paying off their mortgage quicker.

It doesn’t. It simply means you’re paying the lender more interest instead.

Your lender will be able to tell you in advance what your monthly payment will be once your current deal ends.

How much more expensive is a lender’s standard variable rate?

An SVR or ‘follow on’ rate can be between 2% and 3% higher than the average five-year or two-year fixed rate mortgage.

And the lender can raise the rate at any time.

When the Bank of England increases the Base Rate (which it has done 14 times since December 2021) SVR and tracker rate mortgages may increase too, as they usually follow the Base Rate.

However there are exceptions. And some lenders have opted not to increase the rate on their SVR mortgages when the Base Rate has risen.

Your lender will always let you know what’s happening with your mortgage rate.

Current SVRs and fixed rate deals from major lenders

Let’s take a look at the standard variable rate and fixed rate mortgage deals currently being offered by some of the major lenders.

If you had a £200,000 mortgage spread over 25 years on a £250,000 property, you could end up paying several hundred of pounds more in interest each month on the lender’s SVR.

To cite Virgin Money’s rates above as an example:

On the standard variable rate of 9.49%, you’d be paying £1,746 a month.

At the two-year fixed rate of 5.14%, you’d be paying £1,185 a month.

With the five-year fixed rate of 4.64%, you’d be paying £1,127 a month.

That’s a potential difference of £619 a month, or £7,428 a year, between a lender’s standard variable rate mortgage and fixed rate deal.

Use our mortgage calculator to work out what your monthly payments could be.

Why are so many people on standard variable rate mortgages?

Habito’s research suggests many homeowners are slipping onto their lender’s SVR without even realising it or knowing that they have an alternative.

But it’s always worth contacting a broker 3-6 months before your current mortgage deal is due to end.

You can book in a new deal up to six months in advance.

And if a better rate comes up between the time you booked the deal and the time it’s due to begin, you can simply book in that rate instead.

Your mortgage broker will be the best person to advise you on what to do.

Financial concerns

One in 10 homeowners were frightened of lenders scrutinising their finances, given the current economic climate.

This is where a broker can help. They have an in-depth knowledge of the mortgage market and know the rules that different lenders operate by.

Once your broker has an understanding of your financial circumstances, they’ll know which lenders to approach on your behalf.

Unaware of mortgage alternatives

One in 10 didn’t realise it could be possible to get a cheaper mortgage deal.

A mortgage broker will scour the market for you to find the cheapest mortgage rates available to you.

Too much hassle to switch mortgages

In a recent survey by Which?, 41% of homeowners on an SVR mortgage said they’d be unlikely to switch to a cheaper deal.

They felt it ‘wasn’t worth the hassle’ or they ‘hadn’t really thought about it’.

This in part may be because homeowners with smaller mortgages are less likely to feel the financial hit when moving onto an SVR.

But when the savings can run into hundreds of pounds a month, it’s a call to a broker that’s worth making.

Fears of being in negative equity

Other homeowners were concerned that they might be in negative equity.

Negative equity is when a property you own is worth less than the mortgage you're paying on it.

What is negative equity?

Most lenders won't let people with negative equity switch to a new mortgage deal when their existing one ends. Instead, they'll normally be moved onto their standard variable rate.

You can find out if you’re in negative equity by checking the balance left on your mortgage and inviting estate agents round to value your home.

If you are in negative equity, it could still be worth speaking with a mortgage broker, as they may be able to find a lender that could help.

Mortgage rates set to stay at around 4+% in 2024

In good news for homeowners and buyers, mortgage rates are now holding steady and look set to plateau at around or just over 4% for the rest of the year.

Inflation has now come down and so have swap rates - the rates the banks pay to borrow money.

Swap rates are based on what the markets think the interest rate will be in the future.

Right now, the average mortgage rate for a 5-year fixed rate at 75% loan to value has reached 4.59%, across the big six lenders.

The reduction in swap rates will take time to feed through into mortgage rates, and our Executive Director - Research, Richard Donnell, believes mortgage rates are unlikely to drop further this year.

Will mortgage rates go down in 2024?

Whether you need to remortgage now or in six months time, if your current mortgage deal is coming to an end soon, it’s well worth contacting a mortgage broker.

They will be fully up to speed on the latest mortgage market trends and current rates available.

And they are in the best place to advise you on getting the cheapest possible mortgage deal for you.

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by Blackstones

Home values on the up in 2024

The average UK home is now worth £2,400 more than it was 6 months ago. But if you own a terraced property in the north, it's likely to be a lot more than that.

Growing buyer confidence and a rising number of sales in the first half of 2024 are translating into a firming up of home values.

Our latest estimates reveal the average UK home is now worth £278,000, up £2,400 from December 2023.

Every month, we generate value estimates for nearly 30m UK homes, using a combination of local sold and asking price data to show indicative home values.

Our data reveals half of UK homes (15 million) increased in value in the first half of 2024 by 1% or more. That’s the highest number since December 2022.

And while most of the gains are modest, a third of UK homes (10 million) went up by £5,000 in value, that’s twice the number of homes that saw this increase in 2023 (5.4 million).

In the same period, 8 million homes (27%) have kept their values broadly the same (changes within 1%).

Overall, 6.7 million UK homes have fallen in value by at least 1% since the end of 2023, a sign that some markets are taking longer to recover from the effects of higher mortgage rates.

That said, 14 million homes were losing value at the end of 2023, so it’s a step in the right direction for homeowners impacted by recent price falls.

Meanwhile, the north-south value divide continues, with fewer homes in the south gaining value, as higher prices exaggerate the impact of higher mortgage rates on buying power.

Terraced homes in the north make biggest value gains

Home values are rising fastest in northern England.

In Yorkshire and the Humber homes went up 1.4%, while in the North East they rose by 1.9%.

Overall, half of homes in northern England went up in value by £1,000 to £10,000, while 1 million homes (14%) gained more than £10,000.

Homeowners in Oldham (83%), Wakefield (77%) and Co. Durham were most likely to see their home values increase by 1% or more.

And homes under £150,000 are seeing the greatest value growth (5%+), especially terraced properties, with nearly a fifth rising by 5% or more in value.

This clearly shows that value-for-money homes are a popular choice among buyers facing higher mortgage costs.

Most expensive homes more likely to go up in value in southern regions

Pricier homes in the south have seen their values impacted by higher mortgage rates and consequently their home values are taking longer to recover.

Since the start of 2024, the typical value increase here has been below 1%. Yet nearly 6 million homes have risen by more than that  - the highest number since the end of 2022.

The top 10% of the most expensive homes in the south actually saw more gains than their cheaper or average-priced counterparts.

In areas where house prices are above the average, such as West-Central London, Watford and Bath, 7 in 10 homes have risen in value, with most seeing gains of £5,000+.

However, nearly 3.5 million properties in southern England have continued to see their values fall - and many of these homes were detached.

The market for these homes suffered from a demand/supply imbalance earlier this year, as aspirational buyers continued to reassess their requirements in the face of high borrowing costs.

Will home values keep rising now?

Our expectation is for house prices to grow by 1.5% by the end of the year. 

But the south-north divide is here to stay, with homes in the north showing above average growth.

Those increases are unlikely to return to pandemic levels however, unless mortgage rates fall dramatically.

Meanwhile, house prices in the south of England are expected to continue to track below the UK average as they realign with people’s incomes.

Key takeaways

• Half of UK homes (15 million) increased in value by more than 1% in the first half of 2024
• Overall, the value of the average UK home has gone up by £2,400
• And 1m homes in northern England have increased in value by £10,000 or more
• Meanwhile a further 6.7m homes have fallen in value
• And the north-south divide continues to grow, with home values rising in the north and declining in the south
• That said, higher-value homes in the south are bucking the trend and their values are still on the up

 

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by Blackstones

Renters Rights Bill: what it means for renters and landlords

The new Labour government has introduced a Renters Rights Bill. So what does this mean for renters and landlords? Our Executive Director of Research, Richard Donnell, shares his insights.

The overall experience of renting is positive but its poor for a significant minority

Rental reform is back on the agenda for the new Government with a rebranded Renters Rights Bill. It brings forward many of the proposals that were making their way through Parliament before the election was called.

While debates on rental reform are often framed in examples of poor or bad practice, the reality is that most private renters are satisfied with their experience of renting.

A recent survey of private renters found eighty five percent were satisfied, or better, with their rental experience while 86% were satisfied, or better, with the condition of their home.

However, there remains a small but not insignificant number of homes which are in poor condition, where renters are having a poor or unsatisfactory experience.

This is where reforms are needed to improve standards for renters, while still encouraging more investment to expand the number of homes for rent - both private and social.

Static number of homes for rent making problems worse

The stock of social rented homes has been static for 20+ years, meaning the private rented sector has absorbed a growing proportion of demand from those in the greatest housing need.

A quarter of private renters are on low incomes and in receipt of full or partial housing benefit.

Consumers recognise the problems facing renters and want reforms

We ran a pre-election survey with Ipsos on what the new Government's priorities should be when it comes to renting.

Controlling the pace of rent rises was the 4th most popular response, while rolling out improved rights and protections for renters came in at number 10.

But building more homes was the top priority across the board.

What is in the proposed Renters Rights Bill?

The bill applies to renting in England with some elements also including Wales.

Scotland and Wales have already made a series of changes to improve the rights and protections for renters, so the Renters Rights Bill mainly covers how England plans to improve its rented sector.

Renters will be pleased to see a raft of proposals such as the ending of section 21, so called ‘no fault’ evictions, while still allowing landlords grounds for possession.

There are plans to improve rights to challenge rent increases as well as a right to request a pet, which landlords must consider and cannot unreasonably refuse. Landlords will be able to request insurance to cover potential damage from pets if needed.

Less clear is how the Bill will ‘stop bidding wars’, given there are simply not enough rented homes, with 15 people chasing every rented home right now, double the pre-pandemic level.

As well as more protections for renters, there are some important plans to improve the quality of rented accommodation, such as a new rented property database and plans to introduce a Decent Homes Standard for private rented properties.

What is missing from the Renters Rights Bill?

These reforms don’t go as far as in Scotland and Wales in terms of security of tenure but they are an important step to ensuring greater balance between landlords and renters.

The Government has also avoided any talk of rent controls, which might sound attractive at face value but put off investment in new supply. Growing supply is the most sustainable way to stop rents rising quickly.

Mandatory training for anyone involved in letting and managing property is another option that exists today, and which many agents undertake, but it could be rolled out across the market.

What impact does the Renters Rights Bill have on landlords?

Landlords have faced greater taxation and increased regulations for some years now. And renting property is a complex process.

Together with higher mortgage rates, this has led some landlords to decide to sell up. There isn’t an exodus of landlords but those who don’t see it as a business and for whom the costs and risks are too high are deciding to sell.

The underlying cashflow from renting is set to remain strong but, as with everything, the costs of business have increased.

Landlords who see renting as an income-producing business should not be overly concerned by these proposed reforms.

The focus for landlords will continue to be buying homes in areas of high tenant demand that are in good condition, with low maintenance and running costs to minimise the impact on rental income.

Key takeaways

• The new Renters Rights Bill is designed to improve rights and protections for renters
• It will focus on improving the quality of rented homes
• But growing rental supply is ultimately the long term solution to giving renters a better experience
• And landlords who see renting as a business should not be threatened by these changes

 

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by Blackstones

What the new government’s housing priorities should be

Our Director of Research, Richard Donnell, reveals what the new government needs focus on when it comes to housing.

Current housing conditions

The sales market has been more resilient in the face of higher borrowing costs than many expected - but the adjustment is still ongoing.

Historically, moving from 1% to 5%+ mortgage rates would have led to a double digit drop in house prices.

Mortgage regulations introduced by the Bank of England in 2015 - designed to stop a debt-fuelled house price bubble driven by ultra low rates - limited the over-valuation of house prices and this is why we have had modest price falls over the last 18 months.

Someone buying a home in 2021 paying a 1.5% mortgage would have to prove to their bank they could afford a 6.5-7% mortgage ‘stress’ rate to get the loan approved.

Banks were also limited to how much business they could do at high loan to income ratios and have had to hold more capital for risker high loan to value lending.

These regulations have capped buying power and constrained house prices especially in higher value housing markets.

The impact is greatest for first-time buyers (FTBs), who account for over a third of all housing sales and higher for most mainstream builders.

In 2023, the average FTB buying in London had a £90k income and a £150k deposit, while across the rest of southern England FTBs needed a £60-£65k income and £100k deposit.

Across the rest of the UK, FTBs need to earn a £50k income and a £35k deposit.

This big north-south divide in affordability matters and impacts what we need to build locally in order to support sales rates and address housing needs.

In unaffordable areas, there is a need to build a wider price range of freehold and leasehold homes.

The national government needs to empower local government and city regions to get into the detail of what is needed and works for their needs - this can’t be set from the centre.

 

Rented housing markets face large supply/demand mismatch

The private rented sector stopped growing in 2016 after doubling in size from 2000, while the social housing sector has seen static headline supply for over 20 years.

There is a modest shake out in the rental market as private landlords, who are no longer seeing renting out homes as a viable business, exit the market.

It’s not an exodus - but the business model has shifted from landlords making money on their properties over many years, to one of focused on monthly cashflow.

The sector is becoming more professionalised and 50% of rented homes are now owned by 20% of private landlords.

While there is more corporate investment, private landlords still hold the key to the overall balance of supply/demand for the next decade or more.

The new government should ensure long term private landlords, who want to deliver decent homes, are encouraged to remain.

Long term, cashflow-focused landlords have nothing to fear from proposed rental reforms.

While supply has been static, the demand side has been booming - a strong labour market, record high immigration from people looking to work and study, has led to an unaffordability of homeownership.

Pre-pandemic, we saw 5-6 people chasing every rented home on Zoopla, it peaked at over 30 in 2021 and is now down to 15 people per rental.

Rents have been outpacing earnings growth for almost 3 years - private rents are 31% higher compared to earnings, which have risen 24%, while the Consumer Price Index has risen CPI 20% - and housing benefit has only risen 15%.

Rental inflation is slowing due to growing affordability constraints rather than more supply. Rents have over-shot in some cities and there have been some modest falls. Across the UK overall, rents won't fall but business plans for rental investments need to have realistic assumptions on how much rents will rise over the next few years.

I should point out renters on low incomes are particularly impacted by strong competition and little-to-no growth in social housing.

Building more affordable rented homes and getting more financial capacity and certainty into the affordable sector is a key pillar to getting more homes built overall, it’s an area where demand is arguably greatest.

Outlook for the market

Rents for new lets will rise by 4-5% this year and affordability constraints among renters will drag on rental inflation in expensive rented markets

We’re now entering an era of much lower nominal house price inflation. House prices are up 1-2% this year and are currently 8% ahead of where they should be in London and southern England.

We expect house prices to rise 2-3% over the next 2-3 years, which is enough to support the development of new homes by builders.

On average, 1.2m homes are sold every year, this year, we expect 1.1m homes to sell, up 10% from 2023.

What a new government’s housing priorities should be

1. Introduce rental reforms but not rent controls, and reset Housing Benefit levels so that they are in line with the current market

2. Build more homes but ‘set the big picture’ nationally and enable a framework for success locally

3. Reform the planning system, with land assessments and housing targets

4. Greater investment in local authority planning teams

5. Clarity for affordable housing providers to encourage investment

Demand for homes exists, but there’s a huge variation in what is needed across various price points and tenures across the UK.

We need to ensure there is the investment capacity to support more supply of homes at scale and give new homes developers the confidence that there are buyers out there.

Key takeaways

• More new homes across a range of price points
• Housing Benefit to rise in line with inflation and wages growth
• Greater investment in local authority planning departments

 

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by Blackstones

House prices set to rise 1.5% by end of 2024

The average house price today is the same as it was in May 2023: £264,900. But some areas are rising while others are falling. Find out what’s happening near you.

UK house prices starting to rise across the UK

Our House Price Index, which measures the rise and fall of house prices across the UK, reveals house prices have risen across all areas of the UK over last quarter.

House price inflation is no longer in negative territory and stands at 0% year-on-year, meaning the average house price is now £264,900, the same as it was a year ago.

Despite this, southern England does remain in negative territory in terms of annual inflation, although that gap is now lessening, while prices have risen elsewhere in the UK.

Sales market momentum is continuing throughout the build-up to the election, with demand for homes up 6% on this time last year.

The number of sales agreed is also up 8%, and we believe that 75% of the 1.1m sales projected for this year have already completed or are on their way through the pipeline.

We calculate that UK house prices are currently 8% ‘over-valued’, a hangover from the sharp price rises that took place during the pandemic, and we expect this to have rectified by the end of the year.

Overall, UK house prices are on track to rise 1.5% over the whole of 2024, a sign that the housing market is remaining resilient.

Our Executive Director of Research, Richard Donnell, says: “The housing market continues to adjust to higher borrowing costs and the summer slowdown is now arriving, tempering activity. The timing of the first cut in the base rate is key and will give a boost to market sentiment and sales activity.”

The average prices for different property types across the UK 

The average price of UK properties is holding steady, with a minor increase of £110 month–on-month and an annual price change of 0% year-on-year.

Meanwhile, if you’re a buyer, this could be the time to look into detached propertes, as they are now nearly £2,300 cheaper than they were this time last year.

Equally, flats and maisonettes are down in price, and are now £2,000 cheaper on average than this time last year.

Where are UK house prices rising and falling in June 2024?

Regions where house prices are rising

Homes in Northern Ireland have seen the biggest rise in prices over the last 12 months, up 3.3%.

They’re hotly followed by homes in the North West (1.5%), the North East (1.4%), Scotland (+1.3%), Wales (+1%) and the West Midlands (+0.5%).

The lower property prices in these regions means there’s less of an impact here from higher mortgage interest rates, supporting demand and consequently, house price rises.

Down in Southern England, the picture is less rosy, with the East of England (-1.4%) leading the way in terms of house price falls.

It’s followed by by the South East (-1%), South West (-0.9) and London (-0.4%).

The East Midlands is also experiencing slight falls of 0.4%.

However, prices in these regions are starting to stabilise, and with prices starting to rise, the falls are now narrowing year-on-year.

Top 10 cities where house prices are rising

Belfast is leading the way in terms of rising house prices, with homes here up 3.4% in the past year, a rise of £5,680, taking the average house price to £173,900.

It’s hotly followed by Rochdale (+2.7%), where prices have risen by an average of £4,460, taking the average house price to £170,100, and Bolton, where homes have gone up 2.3% (£3,790) to hit an average of £171,900.

10 cities where house prices are falling

Cities in the south of England are faring less well, with Ipswich leading the way in terms of house price falls. Prices here are down 3% year-on-year (an average of -£6,520), taking the average house price to £212,100.

In the coastal town of Hastings, house prices are down 2.8% since last May, a fall of £7,890, taking average house prices to £271,400, while in historic Norwich, homes have dropped 2.1% (£5,550), taking the average house price here to £260,900.

Top 10 local authorities where house prices are rising

The north, where homes are traditionally less expensive than in the south, is seeing the greatest price growth in terms of housing.

Sunderland is leading the way, with prices up 5.2% year-on-year, a rise of £5,990, taking the average house price to £121,900. It’s followed by Dumfries & Galloway in Scotland (up 3%, or £4,830), where the average house price is now £148,000, and Lanarkshire.

Homes in North Lanarkshire are up just over £3,000, averaging out at £123,500, while homes in South Lanarkshire are up £3,700, averaging out at £146,100.

Local authorities where house prices are falling

Down in the more expensive south, prices are continuing to fall, after climbing rapidly during the pandemic years.

Leafy Kent and its seaside towns are taking a hit, with historic Canterbury leading the falls, where house prices have fallen  -4.1% (£14,430) to an average of £339,300.

Canterbury’s followed by the coastal areas of Thanet (down 3.9% or £11,630 to £286,200) and Dover (down 3.8% or £11,630 to £293,400).

Prices in Essex are also down, with Tendring, Braintree and Colchester also experiencing falls of around 3%, or £8-10,000.

Momentum continues in the sales market

Momentum in the sales market has continued over June, albeit at a slightly slower pace than the previous 2-3 months as the market is enters the quieter summer period.

And while house price inflation remains negative in the south, improving sales volumes over the first half of the year has led to a firming up of prices.

“All regions and countries of the UK have registered an increase in house prices on a month-on-month basis since January,” says Donnell. “But price rises are unlikely to pick up speed in the coming months.”

That said, on average, they are on track to be 1.5% higher at the end of this year.

75% of this years’ sales are completed or in progress

Our data shows the market is still on track for 1.1m sales this year, and three quarters of these sales have either been completed, or are working their way towards completion.

This figure is 10% higher than the number of sales that took place in 2023 but still below the 20-year average.

“It is positive that sales are rising despite higher borrowing costs,” says Donnell. “It shows more realism on the part of sellers and renewed, cautious confidence amongst buyers.”

How higher mortgage rates have affected house prices

The housing market has been very resilient over the last year given the rise in mortgage rates. These averaged below 2% in late 2021 and stand at 4.7% today, spiking well over 5% in October 2022 and again over the summer of 2023.

“Higher borrowing costs have reduced the buying power of new buyers. But rather than sizable price falls, the main impact has been a sharp decline in the number of sales, which were 23% lower over 2023,” says Donnell.

“House prices haven’t fallen as there have been few forced sellers. And unemployment has stayed low by historic standards, meaning there are a relatively small number of people struggling to pay their mortgage and falling into arrears, despite wider cost of living pressures.

“We expect house price inflation to remain muted, likely to rise more slowly than household incomes over the next 1-2 years.”

Interest rates hold the key

Looking ahead, the near-term outlook for the sales market really depends on the outlook for mortgage rates, which are dependent on interest rates.

“Any reductions in the base rate over the summer and into the autumn will deliver a boost to market sentiment and sales activity, even though the impact on fixed rate mortgages will likely be more muted,” says Donnell.

“Based on city forecasts for base rates, we expect mortgage rates to remain in the 4-4.5% range going into 2025. This is sufficient to support sales volumes and low, single digit levels of house price inflation.”

Meanwhile, house prices in the south of England are expected to continue to under-perform compared with the UK average, as prices realign with incomes.

“Real income growth will be the key to supporting sales and demand into 2025,” says Donnell.

 

Key takeaways

• House prices are now at 0% inflation compared to May 2023
• However, the average UK house price is set to rise by 1.5% by the end of the year
• We believe house prices are currently 8% ‘over-inflated’ to where they need to be, but this will correct itself by the end of the year
• 75% of 2024 house sales have already completed or are in the pipeline

 

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by Blackstones

Bank Rate holds at 5.25%, so when will rates drop?

The Bank Rate holds at 5.25%, despite inflation hitting its 2% target for the first time in 3 years.

Bank rate holds at 5.25%

The Bank of England has kept the Bank Rate at 5.25% for the seventh time in a row.

The Bank has held rates at 5.25% in an effort to combat inflation, leading to higher mortgage repayments but also higher savings rates.

The Bank Rate, sometimes known as the 'base rate’ or ‘interest rates’, affects the rates that lenders charge their borrowers.

Inflation hits 2% target for first time in three years

Inflation slowed to 2% in the 12 months to May, hitting the Bank of England’s target for the first time in almost three years, according to data released by the Office for National Statistics on 19 June.

With rising prices coming back under control, all eyes had been on the Bank to see if the news might mean a cut in the interest rate, which has been frozen at a 16-year high of 5.25% since August 2023.

However, uncertainty over whether cuts would come had led to a rise in mortgage rates in recent months, with average rates on two- and five-year fixed rate deals creeping up since February, according to Moneyfacts.

The average two-year fixed rate now stands at 5.93%, while the average five-year fixed rate stands at 5.50%.

John Fraser-Tucker, Head of Mortgages at online mortgage broker Mojo Mortgages said: “Naturally, the BoE tends to stay neutral during a General Election, so making a rate change weeks before voters head to the polls could be seen as influencing voters.

“Moreover, the housing policies of the elected government are likely to impact the outlook for the base rate going forward.

“Labour’s manifesto seems to focus more so on first-time buyers as they’ve stated that they’ll make the existing mortgage guarantee scheme permanent under the name 'Freedom to Buy'. Comparatively, the Conservatives have focused on policies that they believe will bring down mortgage costs.

“Given the contrasting focuses, it makes sense for the BoE to wait and see which government is elected before lowering the base rate, otherwise it could add more uncertainty to the mortgage market right now.”

Choice of mortgages available increases to highest level since 2008

Meanwhile in good news for borrowers, the choice of mortgages available has increased, with borrowers now having 6,629 mortgage deals to choose from, the largest number available since February 2008, according to Moneyfacts.

However, buyers will need to act quickly to secure the best deals, as the average shelf life of a product has reduced from 28 days at the start of May to just 15 in June.

What does the news mean for existing borrowers?

Borrowers on variable or tracker mortgages will be relieved that their rate is unlikely to go up. Though they’ll be disappointed the Bank Rate wasn’t cut.

According to the HomeOwners Alliance, the average standard variable rate (SVR) now stands at 8.18%, down from 8.19% last November. The rate has stayed at this level since the start of April.

Meanwhile, borrowers locked into fixed-rate mortgages will not be impacted - yet. But borrowers who are due to come off fixed-rate deals and remortgage soon are likely to see their mortgage repayments jump, squeezing household budgets further.

Annual mortgage repayments for the average buyer are now a staggering 61% higher than they were three years ago, before mortgage rates started climbing.

It means that in pure monetary terms, they have soared from £7,100 to £11,400. Two thirds of that hike is fuelled by higher mortgage rates, while one third is due to higher house prices.

First-time buyers are finding it tricky to afford mortgage repayments in the first place. Because of recent interest rate rises, mortgage affordability is now the biggest challenge for first-time buyers, according to the Building Societies Association (BSA).

What is the forecast for interest rates? 

The Bank is generally expected to cut interest rates this year (assuming there are no surprises in store). But opinions on when exactly this could happen, and by how much, naturally vary.

Some economists believe the rate will be cut in August, while others are suggesting it may be as late as September.

As a general rule: if interest rates fall, the mortgage rate forecast would be for mortgage rates to fall too. But time will tell if this happens.

Our Executive Director of Research, Richard Donnell, believes that even if inflation and interest rates edge down, mortgage rates are unlikely to drop much further this year.

Donnell explains: “Lower interest rates would likely result in further modest declines in mortgage rates but how far depends on how low money markets see base rates falling.

“Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range.”

 

Key takeaways

• The Bank of England has held the Base Rate at 5.25% for the 7th time in a row
• Many had been hoping for a drop in the Base Rate after inflation hit its 2% target for the first time in 3 years in May
• The news will be disappointing for mortgage holders, who have been longing for mortgage rates to go down since the bank rate hit its highest level in 16 years in August 2023

 

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by Blackstones

The Parent Trap: how millions of UK parents feel 'trapped' into living near grandparents

With grandparents stepping in to help reduce the cost of childcare, millions of parents are finding themselves feeling trapped in locations close to granny and granddad.

UK parents are stuck in a ‘parent trap’ and feel forced to live near to their children's grandparents in order to get help with childcare, according to our latest research.

Our data of 2,000 UK parents with children under the age of 13, found that half (50%), live less than five miles from their child’s nearest grandparent and seven in 10 (68%) live within a 30 minute journey.

Yet this may not always be by choice. More than half (57%) rely on childcare support from at least one grandparent (rising to 72% of those living within 30 minutes of their nearest grandparent).

Average family receives over £4,600 of free childcare from grandparents

The average family relies on nine hours of grandparent childcare support a week, equating to 468 hours per year. With parents estimating they spend £9.90 per hour on childcare (including nursery, babysitting, summer camps etc), this is worth a whopping £4,633.20 of free childcare annually, at a time when costs are already spiralling.

With nursery costs now higher than the average UK monthly mortgage*, it’s not surprising that many parents are reliant on the ‘nursery of grandma and grandpa’.

However, the flip side is that over half (52%) of parents who receive childcare support from grandparents say they now feel ‘trapped’ when it comes to where they live.

A key reason for this was financial restrictions, with 36% of parents who have grandparent support saying they could not afford to be without it as professional childcare would be too expensive.

Parents would need to earn £8,000-a-year more to forgo free childcare

This support is particularly crucial for parents who have children under school age. Although 18% of parents in this category who receive more than 10 hours a week of grandparent support say that they prefer grandparents looking after their children, the financial stretch required to swap to professional childcare is clear for the remaining 82%.

These parents believe they would need to increase their personal incomes by an average of £8,055 a year in order to be able to forgo free childcare.

Many are even having to put their own home owning aspirations on hold to get free childcare support.

Parents unable to afford larger homes near grandparents

More than four in 10 (44%) of parents feeling trapped would like to move to a larger home, but prices are not affordable in the area they need to be in order to receive grandparent support.

A quarter (24%) say that they would like to move to a different area but can’t as they need to remain near their parents.

Some are even being prevented entirely from getting on the housing ladder, with almost a third (29%) of those who get grandparent support saying that they would like to buy somewhere but are having to rent in order to stay near to their parents or parents-in-law.

20% of parents choose to move nearer grandparents

Whilst some put their moving aspirations on hold, others make a conscious decision to move closer to grandparents after having children.

Nearly two in five (19%) parents said that, since having children, they had moved closer to grandparents, whilst 11% are currently planning to move.

Over the summer holidays, grandparents increase their weekly support by 26% - from 9 hours a week on average to 11.3 hours weekly.

Some parents even admit to asking their parents or parents-in-law if they will move closer to help with childcare support.

Of all the parents surveyed, 28% had discussed moving homes with their children’s grandparents to be closer for childcare reasons. Of those, a notable 31% have had a parent or parent-in-law move house to be closer to help with childcare.

Parents agreed that on average, around seven miles away was the ideal distance to live from a grandparent - close enough to be on hand for regular support, but far enough away that they would not drop in constantly and unannounced.

The research also showed that many parents make do with little to no familial support, with 32% receiving no childcare support from grandparents or any further relations.

Our Consumer Expert Daniel Copley says: “As a parent, I know first-hand how expensive childcare can be, and how valuable family support is. As such, many Brits feel that they are trapped when it comes to where they live, with it being vital that grandparents are nearby to help out.

“This is leaving many in the tricky spot of not being able to afford to buy a place close to their parents, forcing them to rent when they might otherwise be able to get on the housing ladder. Or simply living in an area they don’t really want to live in.

“My advice would be to have open and honest conversations with grandparents about the support they are prepared to offer, and how far they would be willing to travel. Zoopla’s travel time tool can then show all the properties that are within that distance. Equally, grandparents may be amenable to moving. Many may be looking to move to a smaller home, or free up some of the equity in their home to fund their retirement, and moving to a more affordable location may work for them as well.”

* Research conducted by Mortar Research in June 2024 amongst 2,047 UK parents with kids under the age of 13.

Key takeaways

• More than half (57%) of UK parents rely on their children’s grandparents for childcare support, with the average family receiving 468 hours of free childcare a year, worth over £4,600
• This is leading to over half (52%) of reliant parents feeling ‘trapped’ into living nearby their children’s grandparents
• Housing aspirations are being prevented by the ‘parent trap’ - with four in 10 (44%) unable to move to a bigger home because of affordability within proximity of grandparents
• To help, we have a range of tools, from our travel time tool to the new, AI-powered personalised listing recommendations which match users with suitable properties based on their recent site behaviour, to help parents finds their ideal home

 

 

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by Blackstones

General election 2024: What does each party’s manifesto say about housing?

We've compared the housing policies of the major political parties so you don’t have to.

The general election is nearly here, and all the major political parties have now released their manifestos. Of course, we’re particularly interested in what each political party has to say about housing, but there’s a lot to compare and get your head around.

That’s why we’ve done the hard work for you - breaking down the housing policies of the Conservatives, Labour, and the Liberal Democrats so you can easily compare their pledges in each area.

What are the political parties’ policies on housing?

 

 

Key takeaways

• All three parties pledge to ban no-fault evictions for renters
• All three parties pledge to reform or end the leasehold system
• All three parties pledge to build at least 1.5 million new homes over the next parliament

 

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by Blackstones

What income do you need to buy a home in 2024?

The required income to buy a home has increased in recent years. But what does that mean in real numbers? And where is the most affordable place to buy in the UK?

Affordability is one of the greatest barriers facing people looking to buy a home. We talk a lot about deposits, but the household income needed to finance a mortgage is an equally important factor. This is because income levels are used to assess the affordability of a mortgage through the loan-to-income assessment.

First-time buyers tend to have lower deposits than existing owners who may be looking to buy a larger home. Typically, the higher the deposit, the lower the income needed to buy.

Data shows that the typical first-time buyer (FTB) takes a mortgage that is 3.3x their household income. Existing homeowners looking to move take out mortgages that average 3x their household income.

Using these average loan-to-income ratios, and the average asking price of homes for sale on Zoopla, we can calculate the household income needed to buy a home for FTBs and existing owners.

A FTB looking to buy a typical first home (priced at £250,000), with an average 20% deposit, would need an annual household income of £60,600 in order to buy. This figure is £2,400 higher than a year ago.

Those upsizing to an average-priced home currently on the market (priced at £335,000), with a larger average deposit of 35%, would need a household income of £72,600. This is £3,400 higher than a year ago.

The average UK household income is currently £33,300, according to the ONS. This means that two average earners buying together have a household income of £66,600, which is enough to buy a typical first-time buyer home. However, homeowners on the same income are likely to struggle to upsize to an averagely-priced UK home without a bigger deposit.

First-time buyers need two average salaries to buy

First-time buyers often buy with smaller deposits - 20% on average - according to ONS. To help make buying affordable, FTBs tend to look for cheaper properties. For example, the average asking price of a home chosen by a first-time buyer is 34% lower compared to the market average.

The income a first-time buyer will need in order to buy is closely linked to the value of homes in the area. FTBs in northern England and Scotland require lower earnings compared to those in the Midlands, Wales or southern England.

Those looking to buy their first home in the North East require the lowest income to buy in the UK. A typical FTB home in the region costs £120,000, which requires an income of just under £29,100 in order to buy. In areas such as Hartlepool, homes priced around £80,000 are most popular with FTBs. Although homes sold at this price point are typically fixer-uppers or small flats, the household income needed to buy these types of properties is only £19,400.

At £31,500, Scotland has the second-lowest required income for first-time buyers. And in areas such as Ayrshire, savvy folks can buy with a household income of under £20,000.

Back in England, the further south you go, the more you need to earn in order to buy. The average first home in the Midlands is priced below £200,000, meaning the required income is below £49,000. And in southern England, the average income to buy ranges between £33,900 in Great Yarmouth to a whopping £193,900 in Kensington and Chelsea.

Upsizing homeowners need an income of £72,600 to buy

Those looking to move up the next rung of the ladder will find that a higher house price will need a higher income to buy. The average asking price of a home currently listed for sale on Zoopla is £335,000. Homeowners looking to buy such a home with a 35% deposit will need an income of £72,600.

Those planning to buy an averagely-priced home in northern England need a household income between £31,400 (Blackpool and Hull) and £78,000 (Trafford in Manchester).

A homeowner upsizing to an average home in Scotland  (£200,000) would require a household income of £43,300. Yet, the income needed to buy can range from £27,100 in East Ayrshire to £62,800 in the East Lothian area.

Those buying in the Midlands or Wales will typically need a household income above £54,000. However, upsizers won’t be as required to earn as much in locations such as Blaenau Gwent (£32,500), Stoke-on-Trent (£39,000), Bolsover (£46,600) and Boston (£46,600).

Upsizers in the south of the country will need a household income higher than the income of two average earners, which currently stands at £66,600. This is down to higher house values, with asking prices commonly exceeding £300,000.

However, home owners buying in smaller cities in the south may require a lower income. House prices in cities such as Plymouth (£52,000), Norwich (£54,200), Peterborough (£56,300), Portsmouth (£57,400) and Southampton (£58,500) offer more opportunities to buy on a smaller income.

Those upsizing in London will need the highest level of income in Britain - £124,600 on average. However, our analysis shows that those looking to buy an averagely-priced home in East London (Barking and Dagenham, Havering and Newham) and South East London (Croydon, Lewisham, Bexley) will need an income below £100,000.

Why are the required incomes to buy so high in 2024?

The required income to buy has increased by 4% over the last year largely due to higher asking prices and a slight decline in the loan-to-income ratio.

To adapt to this, buyers can put down a larger deposit to reduce the size of the mortgage. If this isn’t an option, a more practical solution could be to look further afield by extending your search area, or consider other types of property.

Our data shows that relatively few first-time buyers are changing what they want from a property as they balance home ownership with complex family needs. The key route to getting more value for money is to widen the search radius and consider more markets.

We find that 2 in 5 buyers in southern England are looking further than a 10 mile radius to find their next home due to the affordability pressures of the region.

Key takeaways

• The average first-time buyer (FTB) needs an income of £60,600 to buy a home - the equivalent of two average UK salaries
• An existing home owner looking to upsize needs a household income of £72,600 to buy an averagely-priced home
• The required income to buy has increased by £2,400 for FTBs and £3,400 for upsizing home owners over the last year
• The most affordable areas to buy on lower incomes are in northern England and Scotland

 

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by Blackstones