The decision to cut interest rates by 0.25% has been welcomed by property experts, though some doubts still remain.
Today (August 7th) policymakers announced interest rates will be cut from 4.25% to 4% – the lowest level since March 2023.
The news, while welcomed, has come as a shock. Andrew Bailey, chief executive of the Bank of England (BoE), said: ‘We’ve cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.’
Over the last few months a number of factors suggested interest rates could have been held at 4.25%. In June, for example, inflation figures were revealed to be higher than expected and Trumps tariffs and extra business taxes strained the public purse.
However, since the news broke, experts from the property sector have expressed their enthusiasm. Rajan Shori, head of real estate at Gilson Gray said the decision is a ‘timely step towards restoring real estate and property market confidence and unlocking delayed capital deployment’.
Though he added: ‘[W]ith the cut already baked into markets, all eyes will be on how far and fast the MPC (Monetary Policy Committee) will cut rates further’.
Lower interest rates means the demand for properties increase which, in turn, drives up the cost of homes. Individuals will be able to secure reduced mortgages, meaning their monthly repayments will be a lot lower than bank’s have previously been able to offer.
To give context, when rates peaked in August 2023 lenders such as Virgin Money, Nationwide and Principality charged over 5% of interest on mortgage loans. During this period, thousands fell into poverty and the costs of homes plummeted which led to major disruptions in real estate.
With this in mind, Daron Kularatnam, group treasurer at lender Glenhawk, said: ‘For UK real estate investors and developers, it will require signs that the BoE is committed to a series of cuts before sentiment improves markedly.’
On the subject of commitment, the outcome of today’s vote suggests policymakers remain uncertain about whether interest rates will continue to come down.
Harry Woolman, analyst at Validus Risk Management, remarked: ‘UK monetary policymakers convened today, with their meeting culminating in the much-expected cut of 25bps to the Bank of England’s base rate – it now stands at 4.00%. The move was deemed a foregone conclusion, yet the result proved far from that, with MPC members recasting their votes for the first time ever.
‘The first round of voting was split 4-4-1 for 25bps cut, a hold and a 50bps cut, respectively. Eventually, the meeting culminated in a 5-4 split, in favour of a 25bps reduction to the bank’s base rate.
‘As of late, the UK’s economy has been trending in the wrong direction, with weak labour market data compounding the concerns of stagflation evidenced by June’s 3.6% headline inflation print. Notwithstanding ever-present fiscal worries and the likelihood of further tariff-related drags, the coming months could prove challenging for the pound and UK-denominated assets.’
Photo by Annie Spratt via UnSplash
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