Finance

House buyers expecting interest rate cut next month

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May marks the second successive monthly drop 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

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 lower 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 slightly from 60,821 in April. But they remain significantly higher than the 50,340 seen in May 2023. May marks the second successive monthly drop 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 declined marginally 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.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, noted: UK net mortgage approvals – an indicator of future borrowing – dropped 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 2023, something also impacting net mortgage lending, which dropped in May amid wavering consumer confidence.

Inflation may be dropping, 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 added 5 bps to 4.79% in May. The rate on the outstanding stock of mortgages also gained with a 4-bp rise to 3.61%, as more people rolled off cheap fixed-rate deals secured before the Bank of England’s rapid rate-hiking cycle began, she said.

She added: 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 rise 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.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Invest for Property. The information provided on Invest for Property is intended for informational purposes only. Invest for Property is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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