EDUCATIONAL
What is happening in the current UK mortgage market?
January 00, 2025 • Author: George Radford
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In the wake of the UK government’s Autumn Budget, we’re fielding lots of questions from clients on UK interest rates and the current state of the mortgage market. We spoke to Donna Spencer, CEO of specialist mortgage broker International Property Finance Group, and this is what she had to say.
CEO
Donna Spencer
“The Bank of England recently reduced its base rate to 4.75%, signalling the start of a stabilisation phase after two years of steep rate increases. These hikes were necessary to combat inflation. Overall, the UK banking sector has reacted cautiously to the new Labour government and the recent increase in inflation. Rising inflation, which jumped back to 2.3% in October 2024, has surprised economists, with energy costs being a significant driver. The inflationary pressure has raised concerns about potential limits on the Bank of England's ability to continue cutting interest rates. This could affect mortgage costs and the broader economic recovery.
From a market perspective, Labour's focus on stabilising the economy while addressing the cost-of-living crisis is being scrutinised. Financial institutions are weighing the potential impacts of Labour's fiscal policies, particularly around taxation and public spending. Banking leaders are closely watching how Labour’s approach to managing public finances will influence borrowing conditions and business confidence. On the broader economic outlook, the Bank of England and analysts anticipate inflation to remain elevated above the 2% target through 2025 before easing. This suggests a continued challenging environment for both consumers and investors, with mortgage rates likely to remain under pressure.
Meanwhile, SONIA rates, which reflect the cost banks incur to borrow from each other, have followed suit, offering a more predictable lending environment. This is positive news for investors, as mortgage products often price against SONIA rather than directly mirroring the base rate.
Experts predict a further decrease in rates, potentially to 4.5% by late 2024, depending on inflation and global economic conditions. While these are cautious steps, they offer hope for a more favourable borrowing climate in the near future
For property investors and mortgage holders, this signals a possible easing in mortgage rates by mid-2024, though the timeline for substantial rate cuts may extend into 2025. This outlook encourages cautious optimism but underscores the need for robust financial planning.”
What the current UK mortgage market means for property investors
While mortgage rates remain higher than the historical lows seen in recent years, we’re seeing increased competition among lenders, creating opportunities to secure competitive deals—especially for buy-to-let investors. Buying investment property with RPA also means working with the International Property Finance Group who excel at sourcing tailored mortgage solutions for international investors granting our clients access to exclusive products often unavailable through traditional high-street lenders.
Donna Spencer, CEO of IPFG says, “When investing in UK property - particularly buy-to-let - it’s important to understand the concept of a "sweet spot." This is where the rental income comfortably covers your mortgage payments, and you’ve done your due diligence on key factors like the location, local demand, and occupancy rates. Essentially, your tenants are paying off the mortgage for you, creating a solid foundation for your investment.”
Conclusion
The UK property market remains a robust choice for international investors, primarily due to its unique characteristics. Housing supply continues to fall short of demand, and as an island nation with limited land for development, this imbalance persists. For investors, this means well-located properties in high-demand areas are likely to retain their value and deliver consistent rental yields over the long term. Investors should not be put off buying, for as the old adage goes, one has to speculate to accumulate and as our December market report shows, house prices are set to increase more sharply in 2025, giving investors the opportunity to widen those profit margins the sooner you buy. - ATTACHED ELS REPORT HERE
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About the author
Managing Director
GEORGE RADFORD
George is the co-founder of RPA Group and Managing Director of the business in the UK and Africa. A qualified chartered surveyor (MRICS) with almost 20 years of property investment experience, George has helped his clients successfully grow and strengthen residential property portfolios in multiple markets and territories.
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