The Bank of England voted to cut the cost of borrowing for the first time in four years earlier this month, reducing the base rate from 5.25% to 5%.
It was also a full year since the Bank rate last rose to 5.25% and the cut brought a huge sigh of relief for both consumers and businesses.
Financial markets had been split 60:40 as to the direction of travel with most suggesting that the only reason for a hold would have been the need to reverse any cut should inflation return in the Autumn.
The decision also came less than 24 hours after the United States’ Federal Reserve hinted at a possible rate cut in September after it maintained its benchmark interest rate in the 5.25%-5.50% range.
In the end the Bank of England’s rate setting committee voted narrowly for a cut by five votes to four.
INDUSTRY REACTION
Richard Donnell, ZooplaRichard Donnell, Executive Director of Research at Zoopla, says: “The cut to the base rate will deliver a further confidence boost to the housing market rather than heralding the start of a big drop in mortgage rates.
“Mortgage rates have fallen this year which is why measures of market activity are all on the up. We are already on track for 10% more sales in 2024 and price rises of 2%. Buyers are paying almost 97% of the asking price, which is the highest level for 18 months. Today’s cut will support the current momentum in the market.
Iain Mckenzie, The Guild of Property ProfessionalsIain McKenzie, CEO of The Guild of Property Professionals, says: “Many will breathe a sigh of relief following the Bank of England’s decision to cut the rate from a 16-year high of 5.25%. The cut will have a positive impact for both mortgaged homeowners and loan-dependent prospective buyers alike.
“While headline inflation fell to the Bank’s target of 2% in May, the decision to cut the rate was delayed due to services inflation remaining stubbornly high. While services inflation is still high, the BoE is looking at the long-term and economic growth.
“Despite the elevated interest rate environment we have experienced over the past few years, a more optimistic overall economic outlook continues to have a positive impact on confidence in the market.
“While many adopted a wait-and-see approach in the period running up to the general election, it is expected that we should start to see transactions levels improve in the second half of the year. The rate cut should be a further shot in the arm for the market.”
Nicky Stevenson, Fine & CountryNicky Stevenson, Managing Director at Fine & Country, says: “The wait is over, with the first rate cut since 2020, positive news for the property market.
“Despite headline inflation falling to the targeted 2% in May and remaining at target in June, the Bank remained cautious about making a decision too soon that could reignite inflationary pressure.
“However, today’s decision was about balancing inflation pressure while stimulating economic growth over the long term.
“Although the property market has faced challenges over the past while, such as an elevated interest rate environment and political uncertainty, it has remained robust with many people forging ahead with their plans to move.
“Now that the general election is behind us, it will be interesting to see whether those who were waiting on the side lines will join in, especially after today’s decision.
“Overall, the outlook for the market is more optimistic than it was in the beginning of the year, and is it expected to continue moving in a more positive direction. This rate cut is likely to have far more of an impact on the property market than the change in government.
Guy Gittens, FoxtonsGuy Gittins, Foxtons Chief Executive Officer, says: “Today’s base rate reduction will come as a welcome surprise for the nation’s homebuyers and one that will only add to the property market momentum that has been building so far in 2024.
“We’ve already seen monthly mortgage approvals sitting at consistently high levels as pent-up demand across the market has been released and, in recent weeks, mortgage rates have continued to trend downwards, with several five year fixed term mortgages available with rates below four percent.
“With interest rates now starting to fall, we only expect that these positive property market trends will intensify.”
Jason Ferrando, Chief Exectuve of easyMoney, says: “Mortgage market activity has been building steadily so far this year and while today’s cut may be marginal, we can expect it to act as a shot in the arm for the sector and one that will spur more buyers to get off the fence and get on with their plans to purchase.
What’s more, today’s cut is likely to be the tip of the iceberg and we could well see another before the year is out, which will only help to fuel market momentum further.”
Jonathan Samuels, Octane CapitalJonathan Samuels, Chief Executive of Octane Capital, says: “We’ve seen a far more settled landscape materialise since the base rate was held at the back end of last year and this stability has been key to the slow but steady recovery of the property market in 2024.
“However, today’s somewhat surprising decision to cut rates for the first time since March 2020 is likely to stoke the furnaces with respect to buyer demand levels and accelerate this recovery at a greater pace than expected.
“We’ve already started to see swap rates reduce in recent weeks, which suggest that mortgage rates are soon to follow, but it’s likely that many lenders will now act sooner rather than later which will help ease the cost of borrowing for the nation’s homebuyers.”
Kevin Shaw, LRGKevin Shaw, National Sales Managing Director at LRG, says: “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.
