As the Bank of England continues to ease UK interest rates, borrowers across the property market are feeling the impact — but not all equally. Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores who stands to benefit most from falling rates, who may miss out, and how brokers and lenders can better support clients navigating this shifting landscape.
The decision-making of the Bank of England’s (BoE) Monetary Policy Committee (MPC) is the single biggest factor driving market activity, influencing borrowing costs, investor sentiment, and property demand.
At its most recent meeting on March 20th, the MPC voted to maintain the base rate at 4.5%. However, since August 2023 – when rates stood at 5.25% – the base rate has been cut three times, and the impact on the market is evident. In March, average asking prices rose by 1.1% compared to the previous month, while sales increased by 9% year-on-year.
This indicates that, with borrowing costs falling, the appetite to invest or buy is rising, and the market is benefitting from a more relaxed monetary environment. However, aside from the wider market statistics, which borrowers benefit most from a falling base rate?
For brokers and lenders to truly support their clients, exploring this question is important, as is understanding how different borrowers are impacted by a fluctuating base rate.
Who stands to benefit from a lower base rate?
When the base rate falls, borrowing costs tend to follow suit. However, not all buyers and investors benefit equally from a falling base rate.
For example, a lower BoE base rate generally translates into lower mortgage rates, making homeownership more accessible. This means that first-time buyers often feel a welcome boost in the wake of a rate cut.
Similarly, buy-to-let investors typically experience an improvement in rental yields. With lower borrowing costs, landlords see their mortgage payments fall, meaning they keep more of their rental income in their pocket each month. Often, this allows them to expand their portfolios or enhance existing properties, thus improving profitability and rental price potential over time.
Elsewhere, those looking to upsize (i.e., move to a bigger property) can take advantage of falling mortgage rates to secure more competitive deals on bigger mortgages, which sometimes results in an uptick in activity in the mid-to-upper segments of the market when the Bank of England makes a base rate cut.
Who benefits less?
However, there are other types of borrowers who benefit to a lesser extent. Cash buyers, for example, experience no direct advantage from a falling base rate as they aren’t reliant on a mortgage. What’s more, if falling mortgage rates result in an increase in price and demand, they may end up facing increased competition and higher costs.
Meanwhile, savers and retirees – many of whom rely on interest earned from their savings accounts or pensions – can also be negatively impacted. Lower rates typically mean reduced income from their savings, which may force them to reconsider their investment strategies or delay a property purchase.
Finally, homeowners and investors with fixed-rate mortgages see little immediate benefit, as their payments will remain unchanged until the end of their fixed-rate term. As a result, they may be paying above market rates for an extended period, harming their purchasing power or rental yields.
How are different borrowers being impacted in the current economic climate?
In the last quarter of 2024, average rental yields for landlords reached 6.93%—the highest since March 2011. While strong demand for rental properties has certainly played a role, the recent reduction in the base rate has also been a key driver of rising rental yields.
However, these benefits are not being felt equally across the market. First-time buyers, for instance, despite securing 341,068 new mortgages in 2024 – up 19% from 2023 –continue to face certain challenges, namely affordability. The average first-time buyer deposit rose by £7,500 compared to the previous twelve months, whilst in London, the average deposit required by first-time buyers is £125,000.
So, while falling interest rates translate into more attractive mortgage deals, borrowing and rent remain high, and as the cost-of-living crisis rumbles on, people’s ability to save to meet affordability criteria becomes increasingly difficult. As a result, many people are simply unable to secure a mortgage.
This highlights the broader issue: lending markets do not support all borrower types equally. A major factor behind this is the tightening of lending criteria in recent years, making it harder for more unique borrower types to secure financing.
This is supported by Butterfield Mortgages Limited’s latest research, which found that 41% of surveyed brokers believe there aren’t enough financial products available to easily provide clients with suitable mortgage options.
High-net-worth individuals (HNWIs) face similar challenges. While they are often perceived as being less affected by interest rate fluctuations, their mortgage commitments typically involve substantial sums—meaning even a small change in the base rate can lead to repayments increasing by tens of thousands of pounds.
As a result, HNWI borrowers continue to contend with elevated rates, a challenge further compounded by the finding that 51% of brokers surveyed who work with HNWI clients say finding suitable mortgage products remains a significant hurdle.
How lenders and brokers can provide better support
Given the influence of interest rates on the property market, it is crucial that investors and borrowers can rely on the expertise of lenders and brokers to help them make informed, confident decisions.
Therefore, lenders must move away from a one-size-fits-all, tick-box approach. Tailoring financial products to each borrower’s circumstances ensures they receive the right support for their next purchase. This is particularly crucial for high-net-worth individuals (HNWIs) and those with complex financial situations.
Brokers play an equally vital role in matching clients with lenders who can accommodate their unique needs, but they must also ensure that they educate their clients and improve their understanding of how the changing base rate might impact their property investments.
Looking ahead, many are forecasting that the BoE will make at least two cuts to interest rates in the year ahead. While lenders will pass on some of the benefits of a lower base rate to borrowers, given the unpredictability of the economic climate, the qualities above will be vital in the coming weeks and months.
Lender and broker collaboration is key to ensuring that borrower profiles can benefit from a falling base rate.
Alpa Bhakta is the CEO of Butterfield Mortgages, a London-based prime property mortgage provider with a focus on the needs of UK and international HNWIs.
