Interest rates have a direct and significant impact on your mortgage, house prices, and savings. Whether you’re a first-time buyer or an existing homeowner, understanding how these rates fluctuate and their effects is essential for navigating the property market.
Mortgage Repayments and Borrowing Costs
Interest rates are a crucial factor when it comes to the cost of borrowing for your mortgage. The Bank of England base rate sets the tone for what lenders charge. When this rate rises, so do mortgage rates, directly increasing your monthly repayments.
At the time of writing, the base rate has been held at 5%, following a noteworthy decrease from 5.25% in August 2024.
Variable-Rate Mortgages
If you have a variable-rate mortgage or a tracker mortgage, your repayments are closely linked to the base rate. A rise in the base rate will lead to higher monthly repayments, while a decrease means you’ll pay less.
Currently, with the base rate at 5%, those on these mortgage types won’t see immediate relief, but there’s potential for cuts by the end of 2024.
For the latest in mortgage rates and deals, get a Mortgage in Principle here.
Fixed-Rate Mortgages
Borrowers on fixed-rate mortgages are protected from short-term fluctuations in the base rate for the duration of their fixed term. However, once the fixed-rate period ends, you’ll need to remortgage at the current market rates, which could be higher if the base rate remains elevated.
As you near the end of your deal, keep a close eye on rate trends using OneDome’s mortgage tools. If the base rate drops, you may secure a more favourable deal.
House Prices and Market Demand
Interest rates don’t just affect mortgage repayments—they also influence house prices. When rates rise, borrowing becomes more expensive, reducing buyers’ purchasing power. This often leads to a decrease in demand, which can result in falling house prices.
UK Housing Market in 2024
In 2023, house prices fell in part due to climbing interest rates, as well as the cost-of-living crisis. In 2024 however, the UK housing market has seen a positive uptick in anticipation of lower interest rates. House prices were up 2.3% in July 2024, and a potential base rate cut later in 2024 could rejuvenate demand, especially in more affordable regions, leading to a potential recovery in prices.
If you’re considering buying, use OneDome’s property search tool to track house price trends in your desired area.
Supply and Demand Imbalances
In areas with limited supply, demand remains competitive, which has helped stabilise house prices despite the national decline. This supply-demand imbalance can create localised price resilience, which is why local market conditions should always factor into your buying or selling decision. For up-to-date local property insights, visit OneDome’s property guides.
The Impact on Your Savings
While rising interest rates increase mortgage costs, they also present opportunities for savers. Banks and financial institutions typically offer better interest rates on savings accounts when the Bank of England base rate is high. This allows you to earn more on your deposits, which can be especially helpful if you’re saving for a home deposit.
Savings Growth vs. Inflation
However, it’s important to note that inflation can erode the real value of your savings. If inflation remains high, the increased interest earned may not fully compensate for the decrease in your savings’ purchasing power. To manage your savings wisely, consider reviewing OneDome’s savings advice and compare savings account rates to ensure you’re getting the best deal.
Future Trends: What’s Next for Interest Rates?
The Bank of England’s decision to hold the base rate at 5% has sparked speculation that a rate cut could happen before the end of 2024 if inflation continues to ease. A reduction in the base rate would likely lead to lower mortgage rates, providing relief for those on variable or tracker mortgages and making borrowing more affordable for new buyers.
Rate Cuts and House Prices
If rates are cut, house prices may rise again, as cheaper borrowing costs stimulate demand. However, those with fixed-rate mortgages coming to the end of their term will need to closely monitor the market to secure a favourable deal when remortgaging. To stay ahead of rate changes, visit OneDome’s market insights and mortgage comparison tools for updates and advice on locking in the best rates.
Navigating the Housing Market with OneDome
Interest rates are one of the most influential factors in the property market, impacting everything from mortgage costs to house prices and the return on your savings. Whether you’re buying, selling, or saving for a home, understanding how these rates affect your finances is key to making smart decisions.
At OneDome, we provide comprehensive tools and expert guidance to help you navigate the ever-changing housing market. We bring the entire home buying and selling process onto one convenient platform to save you time, money and stress.
Start your property journey today with OneDome and stay ahead of market changes with our regularly updated insights and tools.