A first-time buyer in London could be looking at a saving of £240 per month on a mortgage compared with this time last year, new analysis by Rightmove has shown.
With the Bank of England dropping interest rates by 0.25 per cent to 4 per cent yesterday and many wondering what that could mean for mortgages, the analysis could prove helpful for forecasting what comes next.
Prior to this week’s drop, the average two-year fixed mortgage rate for someone with a 20 per cent deposit had already lowered from 5.21 per cent to 4.38 per cent over the last year. Over the same period, the average five-year fixed mortgage rate for someone with a 20 per cent deposit has lowered from 4.91 per cent to 4.52 per cent.
What’s happening with house prices?
Nationwide, the difference in average monthly payments has dropped too, but only by £93, from £1002 to £909. Meanwhile, the average asking price for a typical first-time buyer home has remained flat – currently £227,466 – while average earnings have increased by 5 per cent compared to last year, according to Rightmove.
The average asking price for a typical home for a first-time buyer in the capital is £497,300.
Rightmove’s analysis is based on the typical first-time buyer property sector of homes with two bedrooms or fewer, and a deposit size of 20 per cent, with mortgage costs spread over 30 years.
London remains the most expensive city in the country to get a foot on the property ladder, follower by St Albans and Cambridge, while Aberdeen, Hull and Carlisle are the cheapest for first-time buyers.
Emily Williams, director of research at Savills, said the interest rate cut offered a “welcomed boost for the UK housing market”, with the affordability of mortgages contributing to an uptick in sales.
“Combined with the recent easing of mortgage regulations, lower rates have already begun to build momentum over the past couple of weeks – especially among first-time buyers who are taking advantage of improved affordability,” she said.
“We expect the latest cut to strengthen this activity further, although the close nature of the decision means it is unlikely that mortgage lenders will be strongly pricing in expectations of further cuts this year. Zoopla has recorded an eight per cent rise in agreed sales on the year, despite the traditional summer slowdown.”
When it comes to today’s changes having a further effect on house prices, however, Tom Bill, head of UK residential research at Knight Frank, was more sceptical.
“As the rate cut was expected, any impact will be limited to a short-term sentiment boost rather than cheaper mortgage rates. Its effect on London property prices is therefore likely to be negligible.”
Looking forward to the Autumn Budget, Bill said: “The conundrum for the London housing market is that the government needs to increase its financial headroom to keep borrowing costs in check but do so without sentiment-sapping tax hikes.”