4.75% Base Rate Announced - October 2024
- The base rate came down to 4.75% in The Bank of England's November meeting. Inflation is at its lowest (1.7%) since April 2021 (1.6%).
- The average property price in England and Wales is at an all-time high of £304,959 (August 2024), 2% up from August 2023.
- Homes bought by cash are also at all-time high averages of £285,230 (August 2024) and £256,131 (August 2024) respectively.
- Stamp Duty Land Tax increased by 2% (3% to 5%) for buyers purchasing an additional residential property (second homes or buy-to-lets).
- Remortgages are still low at 30,760 (September 2024) but up 33% from September 2023. I expect this number to increase once the base rate changes.
- The average UK salary is at its highest, reaching £36,036. This means the average mortgage you could get on this salary is around £162,162 based on a good credit score.
Inflation is down, base rate has now fallen
Inflation fell below 2% in September 2024 for the first time since April 2021, having peaked at over 11% in 2022.
Bank of England governor Andrew Bailey has expressed cautious optimism about the faster-than-expected fall in inflation, saying "we've got a very unbalanced mix of inflation components and services inflation remains higher than is consistent with the target."
Shop price inflation experienced a three-year low in October, falling by 0.8% year-on-year. This downward trend indicates that the official inflation rate may stay below the Bank of England's 2% target, with economists expected the base rate to be cut to 4.75% on 7th November and they were proved correct.
Source: Reuters and Bloomberg.
Pressure on ministers for regulations on new-build homes
Ed Miliband, the Energy Secretary, promised a revolution in solar power after the election. However, instead of mandating solar panels on new homes, as many had hoped, the current plans for the future homes standard only "encourage" builders to install panels "where appropriate."
A recent study by the MCS Foundation revealed that a typical three-bedroom home equipped with solar panels, battery storage, a heat pump, and high-quality insulation could save homeowners around £1,340 annually compared to a home without these features.
The government made building 1.5 million homes a key part of its plans for economic growth. However, it remains uncertain whether these homes will meet the highest standards of energy efficiency and low-carbon technology.
Source: The Guardian.
Increases in Employer National Insurance will affect small businesses
Craig Beaumont, Executive Director at the Federation of Small Businesses, expects a rise in Employer National Insurance would "make every job in all our local communities more expensive to maintain.". Smaller businesses might have to offer lower wages or implement a hiring freeze if their tax burdens increase.
Source: BBC.
However, more than a million low-wage workers are set to receive a pay raise of over 6% next year, as the Chancellor announced a minimum wage increase in the Autumn Budget. The increase is aimed at younger workers aged between 18 and 20 to take their living wage close to or in line with the over-21 rate.
This could see an increase in first-time buyers for 2025 and beyond.
Source: The Times.
What was in the Autumn Budget 2024?
Labour's first Budget for 14 years was delivered by Chancellor Rachel Reeves on the 30th of October and involved big decisions on public services spending and taxes.
Inflation is expected to average 2.5% in 2024, 2.6% in 2025, dropping to 2% in 2029.
They addressed the £23bn shortfall in public finances and took action to raise £40bn by raising taxes. Here's a breakdown of the potential changes:
Property and Energy
£5bn to be spent on housing, including an increase in affordable housing. The government is reducing right-to-buy discounts with local government retaining the earnings from council housing sales. The aim for this is to help reinvest this money.
Hundreds of new planning officers will be hired to accelerate housebuilding.
Stamp Duty Land Tax paid on second home purchases is up from 3% to 5%, effective immediately.
A £3.4bn warm homes plan to upgrade buildings and lower energy bills.
Personal Tax
The freeze on IHT is extended to 2030, with business and agricultural relief for assets under £1m.
CGT increased - the lower rate raised from 10% to 18% and the higher rate raised from 20% to 24%.
Income tax and National Insurance will be updated in line with inflation from 2028-29.
The National Living Wage is to be increased by 6.7% to £12.21, equivalent to £1,400 a year for an eligible full-time worker.
Business Tax
Contributions from employers for National Insurance raised by 1.2% to 15% overall from April 2025.
Employers will now pay NI on workers' earnings above £5,000 per year, down from the current threshold of £9,100.
The employment allowance, which reduces a company's NI liability, will increase from £5,000 to £10,500. This provides a tax break for businesses, especially small businesses.
The main rate of corporation tax, which applies to businesses with taxable profits over £250,000, will remain at 25% until the next general election.
This money will be put towards injecting £22bn of funding into the NHS day-to-day spending from the expected £25bn revenue it will generate.
Government Borrowing:
An extra £22.6bn will be allocated to cover day-to-day operational costs of the NHS in England. An additional £3.1bn will be invested in the NHS, likely for infrastructure and equipment upgrades.
The government will run a deficit of £26.2bn in 2026 but aims to achieve a surplus of £10.9bn in 2027-28.
Public sector net debt to fall from £127bn in 2024-25 to £70.6bn by 2029-30.
A total of £6.7bn will be invested in education next year. A significant portion of this, £1.4bn, will be used to rebuild over 500 schools.
Will there be another base rate fall?
Yes! The base rate fell on the 7th of November to 4.75% and with the next meeting on the 19th of December, we could see it fall again by the end of the year.
The Bank of England will look to cut interest rates to complement falling inflation, but it's likely to be brought down slowly. Mortgage payers might be able to see a new dawn as many prepare to remortgage.
Inflation unexpectedly fell below 2% for the first time in three years which might alter the Bank of England's decision to lower interest rates slowly.
The government set the Bank of England a target of keeping inflation at 2%. Having inflation lower than that carries a risk of deflation where people expect prices to continue to fall and therefore wait before purchasing a property for example.
A low inflation rate sounds appealing, but businesses find it difficult to set the correct prices and people can't plan their spending accurately. If everyone reduces their spending because of this, jobs could be lost and businesses could fail.
Capital Economics forecasts that the base rate will be cut down to 3% by the end of 2025 with the Bank of England cautiously leaving the door open to another rate cut this year. If these forecasts are correct, the base rate could fall to 4.5% going into the new year.
No one wants a repeat of the second half of 2023, though, where the UK dipped into a recession and back out again as GDP (Gross Domestic Product) declined by 0.1% in Q3 and then 0.3% in Q4.
People with fixed-rate mortgages should keep an eye on where interest rates are heading, especially as their fixed deal ends. But remember, interest rates can change quickly, so don't assume recent trends will continue. Banks often change their fixed rates based on what they think will happen with interest rates and inflation.
Will there be a UK recession in 2025?
The Quarterly Economic Forecast (QEF) predicts the UK economy will grow by 1.3% in 2025 and 1.5% in 2026. Source: British Chambers of Commerce (BCC).
This, however, is well below the pre-pandemic average. NEISR estimate that Britain's poorest households will not recover fully until 2027.
Will mortgage rates go down in 2024?
In a recent Zoopla article, Nic Hopkirk suggests mortgage rates will stay at and around 4-4.5% for the rest of 2024 and the base rate will likely fall to 3.5% by the end of 2025.
Lowest June on record for property sales volume
England & Wales
Property sales volume fell by 50% year on year at 29,026 property sales in June. While these figures will increase once the Land Registry data is updated, sales volumes continue to fall.
London 
London echoes the wider country, falling 48% year on year in June to 3,113, in the most recent data for registered properties released by the Land Registry. For more on London, read: London Housing Market Report.
Average house prices in London jumped to £531,212 for August 2024.
Are UK house prices falling?
Average house prices in England and Wales rose year on year by 2% to £304,959 for August 2024. Rightmove reports that the average new seller's asking price is £371,958, rising by 0.3%.
Mortgage approval reports
Home buyers
Mortgage approvals for home buyers grew slightly in September to 65,647, up 33% on last year in-line with what I'd expect for September pre-pandemic. The average in the last 10 years is 67,117 so we're close.
Best rates for 2-Year Mortgage Deal
Two-year fixed mortgage rates are falling faster than longer-term deals as markets price in expectations for interest rate cuts from the Bank of England, making short-dated mortgage deals increasingly competitive.
The current average 5-year fixed rate mortgage is 4.64% and the current average 2-year fixed rate mortgage is 4.94%. However, the lowest available 2-year fixed rate is 3.94% and the lowest available 5-year fixed rate mortgage is 3.77%.
Remortgages
The remortgage growth YOY was similar to home buyers up 33%. September 2024 saw 30,760 remortgages approved, but still a way off from the 40,595 average over the past 10 years for September.
Many homeowners cannot afford the high mortgage interest rates available now when they took mortgages out with rates at 1-2% a few years ago. This leaves some homeowners trapped in mortgages they're struggling to pay.
With the expected base rate fall, mortgage rates might become more affordable over the next year, or numerous homeowners will be forced to sell.
How many new build properties are being built?
The average price of a new build in England and Wales remained well over £400,000 in June 2024 after hitting a record high in May, up 26% from the previous year at £437,575. Purchasing a new build property will set you back at least £135,000 more than an average-priced home.
New Build prices remain high
Andrew Boast FMAAT
CEO of SAM Conveyancing
The Bank of England needs to keep the balancing act of base rate vs inflation in line without being too cautious or optimistic, meaning mortgage rates will be more affordable.
The base rate is unlikely to fall to 4.5% or below, which might be too aggressive of an approach by the BoE. The decrease to 4.75% should see healthy growth in the market, but the risk of deflation looms in lowering it even more.
The average price for a property in England and Wales is at an all-time high and sales volume 51% is down year on year. It remains to be seen how new second-home Stamp Duty Land Tax rules could affect the market, whether it boosts the sales volume for domestic first-time buyers or drives away ambitious overseas investors.
I expect more renters to buy if they can afford it despite numerous cities in the UK experiencing almost double-digit percentage rent increases. While the drop in interest rates might make properties more affordable, higher rents could keep forcing prospective first-time buyers out.
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Property Mark (NAEA).
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