What does an interest rate cut mean for the property market?

Cornerstone Tax: What does an interest rate cut, reduced for the first time since March 2020, mean for the property market?

Following a sustained period of record high interest rates, the Bank of England has voted by a majority of five-to-four to reduce the base rate of interest from 5.25% to 5% – the first drop since the start of the COVID-19 pandemic in March 2020.

The decision from the BoE to initially increase and hold rates arose from a mission to tackle sky-rocketing inflation, which peaked at 11.1% in October 2022.

According to David Hannah, Group Chairman of Cornerstone Tax, this came greatly at the expense of the property market – resulting in burdensome mortgage costs for first-time buyers and long-awaited collapse in supply within the private rental sector, contributing to an unprecedented increase in rental costs. 

Whilst the decision from the BoE should come as welcome news to those with their eyes on Britain’s property market, Hannah holds that more can still be done to stimulate the sector – urging the monetary policy committee to aim for a 3-3.5% base rate in order to stimulate private development, incentivise first-time buyers and restart the private rental sector.  

David Hannah, Group Chairman of Cornerstone Tax, comments: 

“Today’s news from the Bank of England marks a positive step in the right direction.

“The monetary policy committee has recognised that a relentlessly hawkish approach has its harsh limits.

“Since their consecutive decisions to raise the interest rate to 5.25%, we’ve witnessed chaos in the mortgage market, dismantling the ambitions of first-time buyers.

“Additionally, a record number of landlords have exited the private rental sector, contributing to higher prices for tenants who once aspired to take their first step on the property ladder. 

“I’d urge the MPC to continue this momentum by considering another interest rate cut in their next meeting, even a reduction by a quarter percentage point would signal further optimism within the UK economy. 

“A target base rate of 3-3.5% should be the overall goal if the BoE want to truly prioritise prospective buyers.”

Kindly shared by Cornerstone Tax