UK Property Market Rebounds: Impact of Bank of England’s Interest Rate Cut

The Bank of England’s recent interest rate cut has sparked a noticeable revival in the UK property market. Following the rate reduction on August 1st—the first since the COVID-19 pandemic—data from Rightmove shows a 19% increase in buyer inquiries compared to the same period last year, indicating a renewed vigor in the housing sector.

Economic Context and Rate Cut Impact

The Bank of England’s decision to lower the base rate from 5.25% to 5% reflects easing inflationary pressures. After reaching its highest levels since the 2008 financial crisis, inflation has recently cooled to 2.2% in July, slightly above the Bank’s 2% target. This reduction in interest rates has made mortgages more affordable, driving increased buyer interest and activity.

Rightmove has responded to these changes by revising its house price forecast for 2024. Originally predicting a 1% decline, the forecast has now been adjusted to a 1% increase in new seller asking prices, highlighting the positive influence of lower borrowing costs on market sentiment.

Market Dynamics and Future Expectations

Despite the boost in buyer activity, the average asking price for new sellers in August fell by 1.5% (£5,708) to £367,785, a typical seasonal decrease. However, this dip aligns with historical trends and is not seen as a cause for concern.

High street lenders have already started reducing mortgage rates in response to the Bank’s rate cut. The average five-year fixed-rate mortgage now stands at 4.80%, down from 5.82% a year ago. While still above pre-pandemic levels, this reduction is expected to further stimulate market activity.

Political and Economic Stability

The rate cut has coincided with increased political stability following the Labour Party’s general election victory in July and a more optimistic economic outlook. These factors have contributed to the market's recovery, as noted by estate agents across the UK.

However, challenges remain. Despite the positive market indicators, borrowing costs are still higher than they were three years ago, and housing affordability continues to be a significant concern. Tom Bill, head of UK residential research at Knight Frank, emphasized that while transaction volumes are expected to increase, uncertainty around the budget and the expiration of favorable mortgage deals could limit price growth.

Conclusion

As the UK property market reacts to the recent rate cut, the focus will be on balancing market stimulation with affordability. With further rate reductions anticipated, stakeholders must navigate the evolving economic landscape to ensure sustainable growth and continued buyer confidence.