This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Categories: government and politics | prs
Although much change is on the horizon, there are indications that the housing market – including the private rental sector – may be on an upward trajectory.
Covering the whole spectrum, from the impact of the Base Rate to political goings-on across the pond, we want to give you a full view of the opportunities that await.
What is in store for the Base Rate?
Meeting the expectations of many economists, the Bank of England (BoE) cut the Base Rate to 4.5% earlier in February.
A majority of Monetary Policy Committee (MPC) members voted for the cut, at 7-2. Among those seven who voted in favour of cutting, two members advocated for a larger cut of 0.5 percentage points. If agreed, this would have brought the Base Rate to 4.25%.
The group’s decisions are based on a disinflation strategy, with the overarching aim of meeting the 2% inflation target. According to their official minutes summary of their latest meeting, they are adopting a “medium-term and forward-looking approach”.
Nobody knows for certain how the MPC members will vote from one meeting to the next. Outside factors influence their decisions, and these are much harder to predict.
When the Base Rate was cut from 5.25% to 5% back in August 2024 – the first cut after seven decisions to hold – BoE governor Andrew Bailey made a point of saying that they would be careful not to cut too quickly or by too much. True to his words, we have seen this cautious, risk-mitigating approach in action over the past few months.
Nonetheless, there are expectations of further Base Rate cuts later in the year. The majority vote in favour of the cut in February would seem to support this.
Swap Rates settling
Lenders typically react to fluctuations in Swap Rates by withdrawing rates and adjusting their pricing.
After a period of increases towards the end of 2024, Swap Rates are beginning to stabilise at slightly lower levels.
Since mid-January, five year SONIA Swap Rates started coming down, before settling comfortably below the 4% mark .
However, with the recent announcement that UK inflation has jumped to 3%, they have slowly started to trickle upwards again.
In the last week or two, mortgage lenders have begun dropping their rates, which is great news for investors and likely as a result of the positive news in the money markets.
International politics
On the other side of the Atlantic Ocean, Donald Trump’s re-ascension to the Oval Office has continued to make waves across the global economy.
In response to the US increasing international trading tariffs, the European Commission have promised immediate retaliation by increasing their own tariffs.
Trump’s “America First” policies have been labelled protectionist, which leaves the ‘special relationship’ between the US and UK in a precarious position.
As close allies, there is always the possibility for some special exemptions to be made for the UK in Trump’s trade war. But if there are none, there is potential risk to the UK economy. The housing market could be affected in turn, but to what extent is unknown as of yet.
Activity in the sector
Across many areas of the housing market, organisations are reporting upticks in activity.
Octane Capital, a specialist lender, commented favourably on the Bank of England’s decision to cut the Base Rate, as well as the recent Swap Rate trends. Their chief executive, Jonathan Samuels, said:
… Current market indicators suggest that there is light on the horizon for the nation’s home movers and buy to let investors, and the year ahead is set to be one of far greater positivity when compared to 2024.
According to a report from Barclays, rent and mortgage spending are on the rise. Despite a 2% increase, consumers remain confident in their ability to afford their monthly payments.
Meanwhile, on the planning permission front, Planning Portal have reported record highs in applications.
As we move further into the year, there is lots to be positive about in terms of Base rate expectations, Swap rates and mortgage borrowing.
When it comes to tenant demand, Labour’s struggles to hit housebuilding targets are only going to drive this higher, so as ever the UK is in much need of the private rental sector.
Commercial Trust will continue to keep you up to date on new products coming to market, and the broader industry so you can invest with confidence.
