Bank of England to hold interest rates at 5.25% – what does this mean for the UK property market?

Cornerstone Tax comments on Bank of England holding interest rates at 5.25% and what it means for the UK property market.

The Bank of England’s Monetary Policy Committee (MPC) has voted to hold the interest rate at 5.25% following two consecutive decisions to pause hikes to the base rate of interest starting in September.

This has prompted experts and analysts to insist that interest rates have reached their apex following from fourteen consecutive hikes beginning in December 2021.

David Hannah, Group Chairman of Cornerstone Tax, the UK’s leading property tax advisory, calls for the BoE to seriously consider cutting the base rate in a bid to signal market optimism ahead of the new year. 

David Hannah comments:

“2023 has been a turbulent year in the UK property market, with successive interest rate increases and a generally hawkish approach to the control of inflation by the Bank of England.

“Emerging trends, such as a 17% decline in transactions in November indicates that the BoE may have overcompensated at the expense of the property market.

“November inflation figures and mortgage approvals should indicate an overall cooling off of the UK economy which, if we are to avoid a recession next year, must be acknowledged by the BoE and, in an effort to avoid a sudden crash of inflation, will increase pressure on the MPC to start reducing interest rates sooner rather than later.

“Economies have momentum, with the rate of inflation continuing its downward trajectory towards the BoE’s threshold of 2% – the MPC must look ahead to the new year and start thinking about the optimum time to cut rates.

“Research from Rightmove last week found that housing prices are tipped to continue falling by the end of the new year, implying that prospective buyers will still be put off by high mortgage rates.

“I’d urge the MPC to seriously consider cutting the interest rate in their next meeting, even a reduction by a quarter percentage point would signal optimism within the UK economy, with a target base rate of 3-3.5%  being the overall goal if the BoE want to truly prioritise buyers in the new year.”

The decision comes in light of new data from the Office for National Statistics, revealing that the UK economy had shrank by 0.3% in October with economists citing contraction within the services, manufacturing and construction sectors as primary drivers for the waning macroeconomic landscape.

Recent news of a 1.6% drop in the rate of inflation between September and October has also prompted analysts to speculate on a slight reduction to the base rate of interest as prices begin to show signs of stability and wages continue to outstrip inflation.

Within the UK’s property market, consecutive decisions to hold the interest rate at 5.25% stimulated signs of recovery.

In recent weeks, top mortgage lenders have pursued competitive cuts to their products, with the average rate for a two-year fixed falling beneath 6% for the first time since June.

Falling mortgage costs have contributed towards a small resurgence in house prices, with data from Halifax reporting a 0.5% rise in November – the second increase in a row.

Nevertheless, mortgage rates remain a far-cry from where they once stood, with the average cost of a two-year fixed sitting at 2.34% in December 2022. Recent data from Rightmove has forecast a 1% fall in house prices next year, indicating that sky-high mortgage rates are still putting off many would-be first-time buyers.


Kindly shared by Cornerstone Tax