Mortgage rates will hopefully fall once Budget uncertainty is over

Regardless of what happens in this week’s Autumn Budget, property activity should strengthen in the next 12 months – driven by reductions in the average mortgage rate.

The prediction comes from Octane Capital CEO Jonathan Samuels, who noted that lenders are currently holding back from aggressively competing on mortgage rates, largely due to the uncertainty that comes with an Autumn Budget announcement.

Samuels said: “Investors are worried about the impact of this week’s Budget, largely stoked by the government’s talk of a ‘£22 billion black hole’ in public finances that they need to fix.

“With this in mind, mortgage lenders are waiting to see how the government’s announcement alters the market before they start dropping rates to gain market share.

“Obviously we hope Labour keeps tax increases to a minimum, but regardless of what happens the fundamentals of the market are getting stronger all the time.

“Landlords are making steady profits, tenant demand is as fierce as ever, and mortgage rates should start falling once the Budget is done – easing the burden on the nation’s investors as we move into 2025.”

Autumn Budget uncertainty

Investors are particularly worried about a potential change to Capital Gains Tax, as it’s rumoured that Labour Chancellor Rachel Reeves will impose a steep hike from 24% to 40% for higher rate taxpayers. However, whisperings suggest that any changes made may exclude property which will be welcome news for buy-to-let investors.

Other potential tax raids on the government’s radar include Inheritance Tax, which is currently charged at 40% on estates worth more than £325,000.

Unless Labour intervenes, higher stamp duty thresholds will also revert back to previous levels in April 2025, taking the nil band from £250,000 to £125,000; and for first-time buyers from £425,000 to £300,000.

If the government chooses to leave the stamp duty bands as they are, there’s likely to be an influx of activity ahead of the April 2025 deadline.

Mortgage rate cuts on the horizon

The markets widely expect the Bank of England to cut the base rate from 5% to 4.75% in November, after the CPI Inflation rate fell to 1.7% in September, below the Bank’s 2% target.

The average mortgage rate stood at 4.87% in September, based on the cost of an 85% loan-to-value two-year fixed rate mortgage, but economists reckon they could fall considerably in 12 months’ time.

Research consultancy Capital Economics has suggested that average interest rates will fall to 4% by the end of next year, with Goldman Sachs going for an even more optimistic 3%.

Taking the average of the two predictions, that would bring monthly payments down by around £150 per month, based on buying an averagely priced property with an 85% LTV mortgage.

The Autumn Budget will take place at around 12:30pm on Wednesday 30th October.