In Leeds, Simon Goulding, who is about to buy his first home, is seeing how quickly the mortgage market is changing.

In April, he was offered a loan worth 26 percent of the value of the house, fixed for five years at 4.9 percent. Last week, after finding the right property, he was able to get a mortgage of 37 percent, fixed for five years at 4.05 percent.

“I just want to get the deal done quickly,” says Goulding, who is happy with the new rates being offered and wants to do everything he can to keep the house from slipping through his fingers.

He’s not alone in feeling a new sense of urgency. Since the Bank of England cut the base rate to 5 per cent on 1 August, the number of buyers approaching agents through Rightmove has risen by a fifth compared with last year, and major mortgage lenders have cut their rates — in some cases multiple times. This week, Nationwide, TSB, Barclays and HSBC all announced further cuts to their base rates, as the price war between lenders intensified.

A year ago he would never have been able to make an offer on that house… the mortgage rate was simply too high.

Three months ago, the best five-year fixed-rate mortgage on the market for purchases of up to 75 per cent loan to value (LTV) was 4.44 per cent, according to Moneyfacts. On Thursday it was 3.94 per cent.

On a £750,000 mortgage with a 25-year term, that would mean a reduction in monthly payments of over £200.

“Borrowers may find they can also afford larger mortgages as banks calculate their affordability criteria for many products using their standard variable interest rates, which have fallen since the BoE decision,” said Ray Boulger, senior technical manager at mortgage broker John Charcol.

But will this breathe new life into the UK housing market? Or will underlying affordability constraints keep buying and selling subdued for some time to come?

Falling mortgage rates are already changing what buyers want borrowing. Mike Boles, head of private practice at Savills Private Finance, says variable rate products have long been popular with wealthy homeowners because they allow for fee-free early repayments in the event of a work bonus or a windfall from the sale of investment assets.

“But since August 1, fixed interest rates have become so attractive that many customers have called me to discuss switching,” he says.

City trader Jonathan has just bought a house in the capital for £2.5m, transferring a £1m variable mortgage he’s had since December. He believes mortgage rates will fall, but is currently applying for a five-year fix at 3.84 per cent with HSBC – an offer he will accept immediately if he thinks rates could rise again.

“Right now I’m waiting, but there’s still an inflation risk. So if sentiment turns, I’ll be the first to know because of my job, and then I’ll jump in and fix it for five years,” said Jonathan, who asked not to give his real name.

“When interest rates get into the 3s, rich people think: after tax I can earn more on my money, so it makes sense to borrow again,” says Simon Gammon of Knight Frank Private Finance.

There is another reason, he adds. “With the new Labour government clearly showing its intention to raise taxes, there is a real concern that inheritance tax will rise. Borrowing against your home, thereby reducing the amount liable to IHT on death, makes more sense,” he says. The government’s tax plans will be unveiled in the Chancellor’s first budget, on October 30.

In the mainstream market, where buyers expect rates to come down, the appeal of two-year fixes has increased, while that of five-year fixes has declined. In July, 55 percent of John Charcol customers took a two-year fix; only 30 percent opted for a five-year.

Yes, in relative terms, buyers are slightly better off than when rates peaked, but there is still a huge gap between home prices and profits.

Sam Thompson and his partner, who both work remotely and can live anywhere in the UK, are looking to buy their first home in Glasgow and borrow up to £250,000 to buy a property for up to £300,000. While they would appreciate the lower interest rate they would get on a five-year mortgage, they prefer the greater flexibility of a three-year product, he says. “We’re not necessarily committing to living there forever. It will be easier to move without taking the mortgage with us,” he says.

But how long the preference for shorter terms will last is unclear, says Andrew Montlake, managing director at Coreco, a mortgage broker. He says that since Aug. 1 and in light of recent cutbacks by major lenders, many more clients have enquired about five-year deals — a route he believes makes the most sense. Swap markets, the way lenders price their fixed-term deals, predict that the base rate will be 3.5 percent in two years.

“So the two-year fix strategy means that if lenders will pass on future rate cuts, if there’s no spike in inflation, if we don’t have another Liz Truss-style domestic mess, you’ll save money in the long run,” Montlake said. “That’s a lot of ifs.”

“The downside of taking the shorter term is that you make the wrong decision,” says David Wise, a high-end mortgage broker based in London. “If you commit to a longer term, you know what your future payments are – even for (very wealthy) clients, that’s valuable.”

Entrepreneur Will Clarke, 27, and his partner have just moved into their first home in Kent, having borrowed 85 per cent of the purchase price. Given the financial uncertainties of running two businesses, he prefers the predictability of a five-year fixed-rate mortgage, especially as he is unsure whether mortgage rates will fall.

“This way I know that no matter what happens, I can afford the payments,” he says. “Yes, we could have waited for mortgage rates to come down, but they could go up, which means (our mortgage) would be more expensive in the long run.”

Brokers certainly expect lower rates to kick off a late summer peak. Sharon Hewitt, who runs Chiltern Relocation, a Buckinghamshire-based buying agent specialising in clients moving from London into expensive homes, says she has received significantly more enquiries since August 1.

“Now that the election is behind us, people have more clarity and the rate cut has signaled a more optimistic economic outlook,” she says.

“It has put a foundation under the market and encouraged (buyers) to buy,” says Henry Pryor, a British buying agent who helped clients swap two homes for £6.5 million in the week after the BoE decision. “Buying feels less risky after (the cut),” he says. “The broader economy looks more stable, which should mean house prices are more predictable and job security looks more assured.”

On August 8, the Royal Institution of Chartered Surveyors reported that its monthly survey of estate agents indicated “a meaningful increase in future sales volumes” in July, with more respondents expecting both sales and prices to rise in the short term and over the coming year.

According to Zoopla, house prices rose by 1.4 percent in the year to July compared with a year earlier. The company is forecasting annual gains of 2.5 percent in 2024. As recently as November, when the average two-year fixed-rate mortgage cost 6.29 percent, Zoopla was predicting a 2 percent fall in house prices in 2024.

According to Richard Donnell, head of research at Zoopla, the market is on course for 1.1 million home sales this year, up 10 per cent from 2023.

Interest had been growing in the weeks leading up to the rate cut, says Montlake. “We were already seeing increased demand in popular areas.” In July, one of his clients was one of five to make “best and final” offers on a family home in Fulham two days after it went on the market for £1.85 million; the client bid £1.95 million and the house sold for £2 million.

“A year ago he would never have been able to make an offer on that house… the mortgage rate was just too high,” Montlake said.

For other buyers, the recent bank cut has caused them to shelve their plans to buy and instead wait for better deals. In January, Heather Cazemier and her husband, who own several other homes in London, secured £700,000 for a five-year fix at 3.94 per cent to buy a £1.285 million apartment in Canary Wharf.

At the last minute, when the couple discovered that mandatory works to the building could cost them a further £100,000 over the next few years, they pulled out.

“(Interest rates) are going in the right direction now. I’m glad we didn’t do it because we would have been stuck for five years and paying more than if we had waited six months or a year,” she says. She and her husband have postponed their house hunt and may not buy at all.

But judging by swap market prices and the expected timing of future rate cuts, there is a limit to how low mortgage rates will go over the next two years.

“We are certainly not going to get back to the levels we had before this last cycle of rate cuts,” said Andrew Goodwin, chief UK economist at Oxford Economics, who believes mortgage rates will stabilise around 4 per cent by 2027, with bank rates he predicting will reach 2 per cent by then.

“It is still unclear how much mortgage rates will fall towards the end of the year, and much depends on the outlook for inflation and base rates,” Donnell said.

For many current and future homeowners, that won’t mean much for the affordability of their homes, making a summer home purchase less likely.

“Yes, in relative terms buyers are slightly better off than when rates peaked, but there is still a huge gap between house prices and incomes,” said Cara Pacitti, senior economist at the Resolution Foundation think tank.

Despite the ratio falling from its peak in 2021, house prices are still 8.3 times higher than the average income for full-time workers in England, the ONS said.

For first-time home buyers, rising rents (5.7 per cent in the year to June, according to Zoopla) and high inflation are eating into their savings and depleting the savings opportunities created by rising wages.

“So even if mortgages become more affordable, scraping together enough money for a down payment remains a real constraint. A large part of the population is still far from the housing ladder,” says Pacitti.

According to Donnell, agreed sales rose 5 percent year-on-year in the week after the rate cut, but have now returned to year-ago levels.

“We still have some big affordability constraints there,” he says. “I don’t think this is a tipping point or that we’ll look back and say, wow, look what an impact that base rate cut had on sales.”