The Bank of England’s decision to lower interest rates at the start of August is anticipated to give the housing market a significant lift, according to CEO of Octane Capital. Analysis conducted by the firm indicates that mortgage approvals tend to rise in the three months following a base rate reduction, offering a potential boost to the property market.
Mortgage approvals and rate cuts: What the data reveals
Octane Capital’s study examined mortgage approval trends dating back to January 2008, focusing on how these levels changed in the months following either a rate cut or increase. The findings suggest that the recent rate cut could trigger a welcomed rise in mortgage approvals. Historically, even when the base rate has been held steady, market stability has improved. For instance, mortgage approvals climbed from 44,424 in September 2023, when the rate was held at 5.25%, to over 60,000 monthly by February of this year, maintaining that level since.
The most notable increase occurred during the Covid-19 pandemic when the base rate was reduced to 0.10% in April 2020. Mortgage approvals surged by an average of 118.4% in the three months following the rate cut. Even when excluding the Covid-19 boom, the data shows that, on average, mortgage approvals have risen by 2.62% in the three months after a rate reduction since February 2008. Conversely, rate increases have typically led to a 1.43% decline in approvals.
Expectations for the housing market in 2024
Jonathan Samuels, CEO of Octane Capital commented on the findings: “It stands to reason that a reduction in interest rates will help cultivate a greater degree of mortgage market activity, and the uplift felt as a result of last month’s rate cut could be even more substantial than historic trends suggest.”
He added, “Home buyers have had to endure one of the most sustained periods of affordability pressure in modern times, and this has caused a great deal of pent-up demand to build across the property market. There’s no doubt that a hold on interest rates has helped to steady this ship, but now that the base rate is starting to reduce, we expect this pressure to uncoil at pace, which should drive further house price growth over the remainder of the year.”
As the UK housing market enters a new phase, landlords should be mindful of these trends, which may influence future market dynamics and property values.
