Current interest rates – and the impact of them dropping

Current Interest Rates

The Bank of England (BoE) announced on the 21st March 2024 that interest rates will remain the same at 5.25% for the fifth consecutive time. However, the BoE did hint at interest rate cuts soon.


At its latest meeting, the Bank said it had discussed cutting rates, with inflation – the pace of price rises – set to fall quickly this year. Governor Andrew Bailey says it is “not yet” the time to cut interest rates, but says “things are moving in the right direction”.


The Bank’s Monetary Policy Committee voted 8-1 in favour of holding the rates – the first time since autumn 2021 that no member of the panel voted to increase rates.


The Impact of Interest Rates Dropping

The impact of dropping interest rates on the housing market can have significant effects on various aspects, including affordability, demand, and prices. Here’s an overview of how a decrease in interest rates typically influences the housing market.


Increased Affordability

Lower Mortgage Rates: When interest rates drop, mortgage rates usually follow. This makes borrowing cheaper for homebuyers, reducing the monthly payments on new mortgages. As a result, purchasing a home becomes more affordable for a larger pool of buyers, potentially increasing the demand for housing.


Higher Demand

Increased Buying Power: Lower interest rates increase the buying power of potential homebuyers, allowing them to afford more expensive homes for the same monthly payment. This can lead to a surge in demand, especially in markets where housing supply is limited.


Investment Attractiveness: For investors, lower interest rates make real estate investments more attractive compared to other assets like bonds. This can lead to increased investment in the housing market, further boosting demand.

Impact on Home Prices

Rising Home Prices: The increased demand for housing, driven by lower mortgage rates and higher affordability, can lead to rising home prices, especially if the supply of new homes doesn’t keep up with demand. This price appreciation benefits sellers and existing homeowners, as their equity increases.


Effects on Homeowners and Refinancing

Refinancing Opportunities: Existing homeowners may benefit from lower interest rates by refinancing their mortgages to lower their monthly payments or shorten their loan terms. This can free up disposable income and stimulate spending elsewhere in the economy.


Economic Stimulus

Broader Economic Benefits: The housing market is a critical component of the economy. Increased activity in the housing market, stimulated by lower interest rates, can have broader economic benefits, including more jobs in construction, real estate, and related industries, as well as increased consumer spending.


Are you a first-time-buyer or looking to remortgage? Contact Principle Finance today on 0330 107 1558 or [email protected]


As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. This site is intended for UK residents only and the laws of England are applicable.