Homeowners and prospective buyers hoping for relief from high mortgage rates may need to rethink their plans. Following the budget announcement delivered by Chancellor Rachel Reeves, it appears that hopes for significant mortgage rate cuts are dimming. With new fiscal measures set to boost economic demand, concerns about inflation are once again coming to the forefront, making the Bank of England less likely to lower rates.

The Impact of Rachel Reeves’ Budget on the Economy

The Chancellor's budget has aimed to stimulate growth through measures that enhance consumer spending and economic activity. While this could mean a stronger economy in the short term, the potential downside is clear: rising demand may fuel inflation, a major concern for the Bank of England. This makes it challenging for policymakers to justify rate cuts when price stability remains at risk.

Bank of England’s Inflation Battle

The Bank of England's current interest rate stands at 5%, a level set to combat stubborn inflationary pressures. With the latest inflation figures showing a promising decline to 1.7%, there had been growing expectations that the Bank would soon be able to reduce interest rates at a faster pace. However, the boost in economic demand ( more people spending money) from the budget may force the BoE to hold off on significant cuts to avoid reigniting inflationary concerns.

For mortgage holders, especially those with variable or tracker rates, this means continued high borrowing costs. The era of ultra-low mortgage rates that defined much of the past decade seems firmly in the rearview mirror, as affordability remains a key concern.

How the Housing Market Could Be Affected

The UK housing market is already feeling the strain of elevated mortgage rates, with property transactions slowing and prices coming under pressure; there had been some signs of light at the end of the tunnel as last month's positive net mortgage approvals for house purchases rose from 43,700 in September to 47,400 in October. However, this may be a flash in the pan. First-time buyers and those looking to remortgage may continue to face significant hurdles. The budget’s effect on economic demand could further complicate this landscape, keeping rates stubbornly high and dampening housing market activity.

What’s Next for Borrowers?

While long-term relief could be on the horizon if inflation remains under control, it’s unlikely to happen immediately. For now, mortgage holders and prospective buyers must brace for a potentially prolonged period of higher borrowing costs. Financial planning and budgeting remain crucial as the economic environment continues to evolve.

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The verdict

Chancellor Rachel Reeves’ budget may have stimulated economic demand, but it has also made further mortgage rate cuts unlikely in the near term. Despite the promising inflation rate of 1.7%, the Bank of England may once again be concerned over renewed inflationary pressure, which means rate reductions may be delayed. UK homeowners and buyers must stay prepared and informed as the market navigates these turbulent waters.