Bank of England cuts base interest rate by 0.25%, from 5% to 4.75%

7th November 2024

Today, the Bank of England cut its base interest rate by 0.25%, reducing it from 5% to 4.75%. This is the second rate cut this year, following an earlier reduction in August, as the Bank aims to counteract declining inflation, which recently fell below the target of 2%, reaching 1.7%. The Bank’s decision reflects a cautious approach to stimulate the economy while avoiding a potential resurgence of inflation. This rate cut may gradually ease borrowing costs, impacting mortgages and lending rates in the UK

The Bank of England’s 0.25% rate cut, reducing the base rate from 5% to 4.75%, could have several effects on the UK property market:

Increased Buyer Affordability: Lower rates mean cheaper mortgages, making homeownership more affordable, especially for first-time buyers. This could spur demand for property.
Stabilizing or Boosting Prices: Increased buyer activity may prevent a decline in property prices, especially if demand had been cooling due to higher borrowing costs.
Refinancing Opportunities: Homeowners with variable or tracker mortgages may see lower monthly payments, and others could refinance for better rates.
Investor Impact: The cut may make property investment more attractive, potentially lifting the rental market as well.

Overall, the cut aims to ease financial pressures and stimulate the housing market, though broader economic conditions and supply issues will also influence market trends.

Nuanced impacts on the UK property market:

1. Demand and Housing Affordability

Lower interest rates reduce mortgage costs, slightly increasing affordability for both new buyers and homeowners looking to remortgage. This is especially important for first-time buyers or buyers on the edge of affordability, who might now be able to borrow more or afford properties in pricier areas.
The cost reduction can also positively impact monthly budgets, giving buyers a bit more flexibility in what they’re willing to pay, particularly in regions where prices have been stagnant.

2. Property Prices

As demand potentially rises due to more affordable borrowing, property prices could see upward pressure, especially in areas with limited supply. However, this may vary by region: high-demand urban centres may feel stronger impacts than rural areas.
For sellers, improved demand could mean quicker sales, more competitive offers, and possibly fewer price reductions. If the rate cut boosts market activity, it may prevent price declines expected in a slowing economy.

3. Rental Market Effects

While more people may enter the property market, the rental sector might still remain strong as some would-be buyers hold out, expecting more rate cuts. Increased buyer interest can also push landlords to keep rental property portfolios as asset values stabilize or rise.
For renters, competition in the rental market may continue if there’s limited stock available, meaning rents might remain steady or even increase in high-demand areas.

4. Developer and Investor Sentiment

Developers may feel more confident about launching new projects if borrowing costs decrease, which could eventually improve housing supply. However, given economic uncertainties, they may still proceed cautiously.
Investors might also find buy-to-let or rental properties more attractive with lower financing costs, which could add stock to the rental market and stabilize rents in some regions.

While this rate cut supports affordability and could boost market activity, broader economic factors, like inflation and wage growth, will also shape the property market’s trajectory.