The Bank of England has cut the base rate to 5%, a reduction of 0.25%.
The result only narrowly happened, as the Monetary Policy Committee voted by five to four to make the decision.
The move is good news for mortgage holders looking for rates to come down, as this marks a change of direction after the inflation rate reached the 2% target in May, before remaining there in June.
When announcing the decision, the Bank’s governor Andrew Bailey warned that the move won’t lead to a rapid succession of rate cuts, saying that inflation needs to remain in check for further rate cuts.
Tom Bill, head of UK residential research at Knight Frank, said “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.”
Investors expect one or two more rate reductions in 2024.
Andrew Lloyd, managing director at Search Acumen, said: “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.”
Sam Mitchell, chief executive of Purplebricks, said: “The housing market is finally kicking back into action following a pause for breath around the General Election.
“The Bank of England’s decision to cut interest rates today will supercharge this recovery.
“Already, buyers are leaving the market lull behind to forge ahead with purchasing decisions. However, for first-time buyers, the primary challenge remains firmly in place: the rental market is still a complete mess.
“Labour will need to push ahead with their plans to ‘get Britain building’ and construct more social housing if it’s to lower the barriers to homeownership for first-time buyers. The hope is that these measures, when combined with rates coming down for landlords, should make the rental market more bearable for tenants and help them save for a deposit to finally become a homeowner.”
