The Bank of England’s nine-member monetary policy committee voted 8-1 to reduce interest rates by a quarter-point to 4.75% yesterday, marking the second rate cut this year and indicating that further reductions may be on the way.
It was only the second time rates have been cut since 2020 and the Bank’s next interest rate announcement is on December 19.
Andrew Bailey, governor of the Bank of England, says: “If the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”
The reduction was widely anticipated in the City and as a result the 10-year gilt yield stayed around 4.55%, near a one-year high as the Bank signalled caution on further cuts.
RESTRICTIVE MONETARY POLICY
In the subsequent press conference Bailey stressed the need to keep monetary policy restrictive, preferring a slow approach to easing.
The BoE forecasted inflation to rise from the current rate 1.7% to about 2.5% by year end and projected that recent Budget measures could increase GDP by around 0.75% at peak impact within a year, with a temporary inflation boost of roughly 0.5%.
However, traders still anticipate two additional 0.25% cuts from the Bank by the end of 2025, with around a 50% probability of one more. T
ABOVE EARLIER PROJECTIONS
Walter Avrili, Technical Director at Mortgageforce, says: “This would bring the base rate down to around 4%, which remains above many earlier projections.
“A Trump presidency introduces additional uncertainty: on the positive side, if he swiftly ends the war in Ukraine as promised, rates could decrease more quickly.
“Conversely, if he imposes tariffs on imports and implements large scale deportations, inflation in the U.S. could rise, potentially keeping rates higher for an extended period.”
MORE BUOYANT ACTIVITY
Nathan Emerson, Chief Executoive of Propertymark, says: “With the Bank of England’s most recent Money and Credit Report revealing net mortgage lending has further increased by 0.9% in September, up on the 0.7% seen in August, coupled with proposed changes to stamp duty thresholds from next April, it’s highly likely we may see buoyant activity in the market across the winter months.”
WELCOME NEWS
Matt Thompson, Head of Sales at Chestertons, adds: “With inflation below 2%, it was almost certain that the Bank of England would cut interest rates.
“This is welcome news for house hunters who will now feel more motivated to resume their search.
“We predict the boost in buyer confidence to result in the property market being busier than expected for this time of year.”
MOST IMPACT
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, adds: “Of all the factors influencing home-buying decisions, economic prospects and direction of travel for interest rates in particular have most impact.
“The [rate] reduction will certainly give a kick to those sitting on the fence who are undecided about whether to stick or twist, coming on top of other recent positive housing market data.
“There’s more choice of stock now than a few months ago, so sellers need to remain competitive if wanting to take advantage of inevitable improved buying power as longer-term affordability concerns persist too.
“First-time buyers especially are looking to gain not just properties from investors withdrawing from transactions due to their higher stamp duty liability announced in the Budget but their own obligation to pay more of the tax from next April.”
MITIGATES SDLT IMPACT
Robin Rathore, Chief Executive of Bamboo Auctions, says yesterday’s news mitigates some of the impact caused by the increased stamp duty rates announced in the Budget.
“We’re seeing a lot more activity in the market than we were 12 months ago.
“Today’s reduction should accelerate this even further and bring continued confidence and stability.
“While the base rate reduction is an incremental move, and there is still a way to go, it takes the pressure off aspiring buyers and mitigates some of the impact of increased stamp duty rates announced in the recent Budget.
“With inflation remaining steady following last week’s Budget, it’s likely that we will start to see further incremental drops over the next six months.”
MOOD BOOSTING
Guy Gittins, Chief Executive of Foxtons, says that whilst homebuyers will have been disappointed about the lack of a stamp duty relief extension in last week’s Autumn Budget, yesterday’s news that interest rates have been cut will have been mood boosting.
He adds: “The UK property market has already been showing strong signs of recovery in 2024 and this has been driven by improving market sentiment as a result of a more stabilised lending landscape.
“We also tend to see a wave of new buyer interest following a cut to interest rates, as those previously priced out of the market re-enter the fray and so today’s news will no doubt entice more buyers to make their move.
“With a stamp duty deadline now looming, we expect to see a supercharged level of market activity.”
“With a stamp duty deadline now looming, we expect to see a supercharged level of market activity in the coming months as buyers look to complete before 1st April next year. Yesterday’s decision to cut rates will only help add to this increased momentum and we now look set for a very strong end to the year and an even stronger start to 2025.
“There currently remains a good level of stock on the market, so whilst demand is set to climb, it’s unlikely to drive house prices to the same extent as it would in an under supplied market.”
IT’S BEEN A LONG WEEK
Amy Reynolds, Head of Sales at Richmond estate agency Antony Roberts, says that it’s a significant week for the property market with the Budget, the US election, and now the Bank of England’s interest rate decision.
She says: “The August rate reduction boosted buyer confidence, leading to an uptick in applicant registrations, viewings, and offers, contributing positively to our fourth quarter revenue.
“A further rate drop would likely encourage more vendors to sell and buy, helping to ‘get people off the fence.’
“With likely further reductions throughout next year, this should provide stability.”
“With likely further reductions throughout next year, this should provide stability, giving people the confidence to plan, which is essential for maintaining market momentum.
“With the Budget behind us, we now have greater certainty. Homeowners without second homes may feel encouraged by a rate drop, though those with holiday homes or rental properties may wait for further rate cuts before re-entering the market.
“We are cautiously optimistic but concerned about the future stamp duty rate change for first-time buyers. Do they realise how long it takes to complete a purchase? If the mortgage market reacts positively to today’s reduction, first-time buyers should seriously consider making their move to agree a purchase before Christmas, as delays could prove costly.”
WELCOME NEWS
Robert Sadler, Vice President of Real Estate at Excellion Capital, reckons that the cut to base rates would be welcome news.
But he adds :”We remain wary that any positivity will be muted by the negative impact of the recent Autumn Budget and the inflationary policies announced therein, the result of which is going to be a higher level of government borrowing than anyone predicted.
“The fallout of the Budget’s inflationary pressures are also likely to mean that this is the only base rate cut we see for the remainder of 2024.
“On a positive note, we know from history that markets tend to overreact to bad news such as the Autumn Budget, after which they do eventually settle because certainty is more secure than possibilities and promises, even if the picture created by that certainty is less than perfect.
“And because of this certainty, we fully expect the base rate cut to result in a fall in swap rates, but due to the aforementioned impact of the Budget, this swap rate drop will be smaller than previously expected.”
VOLUMES HAD STARTED TO TAPER OFF
Warren Martin, Director of Operations at ONP Solicitors, part of Movera, says the cut was a welcome step with ONP having already seen transaction volumes taper off over the last two weeks.
But he says: “Now, with this decision, we hope to see lenders release some appealing, competitive mortgage products in the run-up to Christmas, which would help stimulate the market at year-end.
“This rate reduction is particularly encouraging for first-time buyers and those facing remortgage deadlines in 2025 – an estimated 1.8 million homeowners who might otherwise be bracing for steeper repayments. Although some payment increases are likely inevitable, today’s decision should go some way to soften that blow.
“Additionally, with the government’s recent measures to increase affordable housing, boost small housebuilder guarantees, and restrain speculative investments, this rate cut should enhance affordability across the board.”
LONG-TERM IMPACT
Iain McKenzie, Chief Executive of The Guild of Property Professionals, says: “While it will be some time before we establish the long-term impact of the budget on interest rates, today’s decision to cut the rate will be a welcome sentiment boost for the property market.
“Although the broad path of mortgage rates has been trending towards lower rates, over the past few weeks it has not been as clear cut.
“While some lenders have continued to drive new business with competitive rates, others have pulled back a little and adjusted their rates upwards. Hopefully today’s decision will influence more lenders to be more competitive with their offerings.”
CONDITIONS LOOKING FAVOURABLE
And Nicky Stevenson, Managing Director of Fine & Country, says: “As we head into the final months of the year, market conditions are looking favourable, with today’s decision to cut the rate likely to further boost confidence in the market.
“While there was some nervousness in the lead up to the Autumn Budget, activity levels remained robust and should start to build with much of the uncertainty now in the rearview mirror.
“The good news is that inflation seems to have been reined in, rising by 1.7% in the year to September, down from 2.2% in August. The OBR expects that inflation will remain around the target 2% until 2029.”
HUGELY POSITIVE
Mark Harris, chief executive of mortgage broker SPF Private Clients, adds: “This is hugely positive for borrowers, with the Bank of England doing the right thing given inflation is below the 2 per cent target.
“Those on base-rate trackers and variable-rate mortgages should see their monthly payments fall, and those savings will be gratefully welcomed by hard-pressed borrowers.
“While we are seeing a slight increase in mortgage rates, existing borrowers should engage with a whole-of-market mortgage broker approximately six or seven months prior to the current deal ending to lock into a new deal.
“We expect the MPC to continue on the anticipated path for base rate with further reductions in coming months, bringing further relief for homeowners and home ownership within the grasp of first-time buyers. However, what cannot be guaranteed is where rates end up, nor the pace it takes to get there. If you cannot afford to be wrong – that is, if rates were to rise you would struggle to pay the mortgage – then a fixed-rate mortgage usually makes sense.”
TIME WILL TELL
With the Bank’s next interest rate decision on December 19 no doubt all eyes will be on the upcoming CPS inflation figures on November 20th to see how these moves will translate to everyday costs.
Time will tell if Governor Bailey and co will be able to deliver some much needed Christmas cheer.
