Interest Rates Cut: What Does This Mean When Buying A House?

UK interest rates were cut to their lowest ever levels in a bold bid by Bank of England Governor Mark Carney to plot a calmer journey through potentially choppy economic waters.

The rate had stood at 0.5 per cent since 2009, but has now halved to 0.25 per cent and could, according to Carney’s deputy Ben Broadbent, still fall further later this year.

If you’re looking to buy a house then you’ll be wanting to know what the knock-on effect will be for your circumstances.


Interest rates and the housing market

The clearest relationship between interest rate cuts and the housing market comes for those people who are existing homeowner with mortgages.

Those on tracker mortgages will be the first to see the effect. As the BBC notes, they will be able to save about £20 a month straight away. Lenders on a standard variable rate should notice a fall in their bills but they will have to wait for this to be passed on. People on a fixed rate deal will only be able to capitalise if they are coming towards the end of the deal.

This will be a big help to those people considering making their next move in the housing market. Anyone wanting to, for example, upgrade to a brand new house with modern fixtures and fittings and more space might be buoyed by the chance to cut their bills and divert more cash into funding their next move.


On top of that, the knock-on effect should make borrowing rates more favourable for buyers as a whole. If the interest rate cut filters through then anyone looking for a mortgage should be able to get a better deal and will pay less each month as a result. This should help those would-be buyers who are toying with the idea of making the jump from a rented property into a new home. For these people, it may make the difference in delivering a repayment that is substantially lower than the cost of rent.


The main down side is in the effect on savings. It is already tough for people to make their money grow in the bank as they try to afford a deposit. This means it will be doubly important for first time buyers to capitalise on the chance to earn up to £3,000 from the Government from a Help To Buy ISA, for example.


Some would argue, however, that the low interest rate means that it makes even more sense for people to put their money in bricks and mortar, where it should be able to increase in value at a much better rate than if it sits in savings account.


Not just an interest rate cut

The cut in interest rates might have been the highest profile move made by Carney but it wasn’t the only one.


The decision came alongside additional measures aimed to boost the economy, including forcing lenders to pass on the benefits to households and businesses and buying up more Government debt.


The latter aims to pump a little more money into the wider economy in the face of gloomy growth, while the former aims to ensure that the benefit is actually felt and all of the things outlined above do happen.


Taken as a whole, this aims to mitigate some economic pain, ensuring that investment is still made, consumers still spend on the high street and, crucially for buyers, there are a steady supply of new houses for sale up and down the country to invest in.