The property industry has welcomed the Bank of England’s (BoE) decision to cut interest rates for the first time since the start of the Covid-19 pandemic.
The bank’s monetary policy committee (MPC) voted by a narrow margin to cut its base rate from 5.25% to 5%. Four of the nine members of the MPC voted to maintain the rate at 5.25%
Announcing the news, the BoE said: “The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.”
Industry reaction
Simon Gammon
Managing partner, Knight Frank Finance
“Today’s decision will have a limited impact on mortgage rates but it will be transformative for sentiment. There is a meaningful group of buyers that put off moving home in the wake of the mini-budget that can now push on with confidence. The Bank of England has been particularly cautious, so by opting to cut the base rate it has sent a real statement that inflation is largely beaten. The lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates. That said, we’ve seen that the larger lenders are happy to take a hit to profits to gain market share, so we may well see another round of marginal cuts in the days ahead.”
Jim Gott
Head of asset surveillance, Mount Street
“This much vaunted base rate cut is long overdue. It will be interesting to see if the Federal Reserve follows suit, though financial conditions in the US are vastly different to the UK and Europe, where the ECB cut rates in June and the Riksbank in Sweden, often a good lead indictor for global markets, cut rates in May. We welcome the cut that has been the source of speculation for a year. Looking at the commercial real estate lending market, we have seen a marked increase in deal flow during 2024, especially in the alternative lender universe, where volumes have been at similar, or possibly even above, pre-Covid levels. This suggests that lenders and borrowers were relatively relaxed about rate cuts, it was just a case of when, not if. It feels very much like a Goldilocks moment for alternative lenders, with asset valuations likely excessively depressed, interest rate expectations elevated and LTV expectations low.”
Gordon Milnes
Syndicator, Investec Real Estate
“Whilst one swallow doesn’t make a summer, the property market will be breathing easier today. The slump in investment volumes and refinancing challenges seen in the commercial real estate sector over the past two years, and depressed property company share prices, can all be traced back to the rising rate backdrop. Whilst valuations look to be stabilising, further cuts will be required if we are to see a narrowing of the buyer/seller pricing disconnect that has paralysed the market, domestic and international capital being deployed into the sector at scale, and leveraged strategies becoming viable.”
Kevin Shaw
National sales managing director, LRG
“The reduction in interest rates announced by the Bank of England today is good news for the property industry and the millions of people wishing to move, remortgage or get onto the housing ladder after a period of uncertainty. LRG has seen positive trading in July, with sales figures strong and an increasing number of new applicants registering. Today’s decision is a strong indication that growth is here to stay. There’s lot of pent-up demand in the market after months of political uncertainty and today’s decision on rates is the starting pistol that we’ve been waiting for. After a good July, we look forward to an even better August and the likelihood, in many cases, of getting people into their new homes before Christmas.”
Jason Tebb,
President, OnTheMarket
“Finally, the Bank of England has made its much-anticipated move and cut interest rates. The committee is confident inflation is under control, after it hit its 2% target and has stayed there for a further month. This cut sends out an important message to borrowers and the wider market. It signals that the pain of consecutive rate hikes is definitely over and enables borrowers to plan ahead with more confidence. It should also boost activity and transactions, which are so important to the health of the housing market and wider economy. The next question is when the next rate cut will come and whether the bank will feel confident enough to make a further reduction this year without fuelling inflationary pressures.”
Dominic Agace
Chief executive, Winkworth
“With a new government with a strong majority providing political certainty, UK GDP performance surprising to the upside and now the first of hopefully a succession of interest rate cuts, it feels as though the property market has weathered the storm and we should see activity pick up from September.”
Tom Bill
Head of UK residential research, Knight Frank
“The wait for the first rate cut since March 2020 and the hullabaloo of a general election was not a conducive combination for homebuyers this summer, many of whom switched off early for the holiday period. Now there has been a cut, demand and transaction activity will increase when the autumn market gets underway in September and more mortgage rates fall below the 4% psychological threshold.”
Georgina Lynch
Managing director, PJ Livesey
“Following the government’s plans to boost housebuilding earlier this week the interest rate reduction is very welcome news for the property sector and will send a message of confidence to home buyers. We now need to see further rate reductions and mortgage providers to feed this through to consumers to drive affordability. Whilst there’s still more work to do, after years of tough conditions for buyers and the industry it feels like we are finally going in the right direction to solving the housing crisis.”
Adam Higgins
Co-founder, Capital&Centric
“The country needed a pick me up and this is what we’ve been waiting for. It’ll reignite confidence in the market and help to accelerate property schemes that have stalled. More than just kick-starting housebuilding and driving regen projects forward, it’ll make home ownership feel like it might once again be a prospect for many more people.”
Andrew Lloyd
Managing director, Search Acumen
“The tide is now turning, signalling a shift in economic strategy. The Bank of England’s decision to cut interest rates today marks a significant turning point – the first base rate cut since 2020. The tide is now turning, signalling a shift in economic strategy that many hope will revitalise investment in real estate.
“For investors, this rate cut offers a glimmer of hope after a prolonged period of caution. Lower borrowing costs, along with more political stability now the election news has settled, should help to stimulate activity and encourage new acquisitions, too. If rates continue to decrease, we will see increased liquidity in the market as investors reassess their portfolios in light of more favourable financing conditions.
“However, it’s important to match enthusiasm with realism. While this rate cut is a positive step, the market is not without challenges and the recovery of long-term occupier demand in particular is something we may not see for some time yet. Nevertheless, this decision could be the catalyst needed to start this journey and boost sector confidence. If rates return closer to 4% by the end of the year, we are also likely to see lenders to revise their risk appetites, potentially easing access to finance for developers and investors. Those who act decisively will find themselves better positioned to capitalise on emerging opportunities.”
Paresh Raja
CEO, Market Financial Solutions
“The base rate has finally been cut, easing the barriers that have constrained the UK property market amid two years of high inflation and borrowing costs. I expect to see increased market activity in the coming weeks as a result. In recent months, we’ve seen a growing sense of optimism. With property prices and the volume of homes coming onto the market on the rise, today’s decision will likely encourage investors who have been holding back to re-engage. Despite the rate cut, however, borrowing costs remain extremely high, so flexibility for borrowers and brokers remains essential.
“Therefore, any potential rebound in the UK property market will hinge on the specialist lending sector. A recent survey shows that a substantial majority of bridging lenders expect loan volumes to rise over the next year. Given the uncertainty about future rate cuts, lenders should be offering a range of product options to accommodate brokers’ and borrowers’ needs and interest rate expectations. This will help them take full advantage of the opportunities created by the rate cut, even if further rate changes do not occur immediately.”
Jatin Ondhia
CEO, Shojin Property Partners
“The consecutive months of target level inflation were clearly enough for the Bank of England to finally give the green light to reduce interest rates. The decision is a key indicator of the growing sense of economic stability and will likely open up new opportunities for investors as they reassess how to manage their portfolios. The impact of the high inflationary-high interest environment of the last couple of years cannot be underestimated. Homeowners have faced higher mortgage rates than at any point since the financial crisis, while developers have found it harder to access much-needed finance. Today’s decision hopefully signals a clear transition away from this challenging period.
“Looking ahead, alternative investments are likely to play an increasingly important role in investors’ portfolios. While the base rate has now fallen, it’s from a 16-year high – interest rates still remain significantly above the levels that many landlords had become accustomed to before the hikes. As such, diversification will remain a prominent trend going forward, with a balance of savings products and lower-risk investments alongside higher-risk opportunities to provide potential for greater growth.”
Ben Nichols
Interim managing director, RAW Capital Partners
“The Bank of England clearly feel as though the perils of high inflation have been addressed by their action on interest rates and the rate hiking cycle has finally come to an end, allowing homebuyers, investors and BTL landlords alike to take a breath and plan their strategies with greater confidence and freedom. After rates reached their highest level in 16 years, today’s decision will provide much-needed relief, and I expect to see an uptick in activity in the UK property market as a result.
“Recently, sellers have flocked to put their properties on the market, and estate agents have noted an increase in buyer demand. What’s more, official figures show that house prices have grown for three consecutive months, while mortgage approvals have held steady near their highest level in 18 months. This indicates that the market was stabilising well before today’s rate cut. In this context, the additional impetus from the MPC today is likely to encourage hesitant investors and buyers to resume their investment plans.
“However, while we can celebrate a rate cut after two years of hikes and pauses, it is important to remember that rates are still very high in comparison to where they have been in recent memory. For a surge in activity to materialise, brokers and their clients must be equipped with the tools they need to confidently execute their investment plans. Lenders must recommit to offering a wide range of bespoke and flexible financial products to support the property market’s continued recovery.”
