How Will The Interest Rate Cut Affect the Property Market?

The Bank of England has trimmed interest rates to 4.5%, marking its third reduction in less than a year. This follows a cut in November 2024, after which the rate held steady in December. While the majority of the Bank’s nine policymakers backed the move to 4.5%, a few preferred a more pronounced cut to 4.25%, reflecting ongoing uncertainty in the UK economy.

Moreover, the Bank has adjusted its economic growth forecast for 2025, now anticipating a 0.75% expansion, down from a previous estimate of 1.5%. This rate cut is likely to reverberate throughout the financial sphere, potentially lowering borrowing costs for mortgages and loans, while also diminishing returns for savers.

The decision is largely viewed as a boon for the British housing market. With lower borrowing costs, affordability could improve, boosting confidence for homebuyers and those looking to remortgage. The number of UK home sales in January 2025 surged by nearly 20% compared to January 2024, accompanied by an uptick in buyer registrations at the year's start. However, while sentiment is expected to rise, the immediate effect on mortgage rates is likely to be slow, with lenders exhibiting caution in this new landscape.

The timing of this rate cut is especially crucial, as the April changes to the stamp duty threshold loom. The market has already seen a spike in activity from buyers eager to finalise purchases before the new rates come into play. The combination of lowered interest rates and forthcoming tax changes may inspire quicker decisions from those hesitating about moving.

Looking ahead, the potential for further interest rate reductions hinges on the broader economic landscape. Although inflation has eased compared to last year, it remains a significant factor shaping future interest rate policies. While there’s hope that additional cuts could appear in 2025, economic volatility means that nothing is set in stone.