REACTION: Bank cuts base interest rate as inflationary pressures ease

The Bank of England has cut its base interest rate by 0.25% from a 16-year high of 5.25% to 5%, it has been announced.

Members of the Bank’s Monetary Policy Committee voted narrowly for a cut by five votes to four.

The property industry eagerly awaited the outcome, hoping that a cut would come and give the housing market an extra push as the summer holidays begin.

Major lenders such as Halifax, NatWest and Santander all cut their mortgage rates in anticipation of a possible rate cut today.

Many homeowners on fixed rates that are coming to an end soon were also hoping the Bank would give them a boost as they prepare to renegotiate their loans.

Inflation remained at 2% in May and June, which met the previous government’s target, and will have been considered when the Bank made its decision.

The last meeting of the MPC in June decided to keep the base rate at 5.25%, and the next announcement, after today, is on 19 September.

New Chancellor Rachel Reeves said she would support a cut in the base interest rate. Reeves, who became Chancellor after Labour’s victory in the General Election last month, said the Bank was “rightly independent”, but should consider a rate cut.

Industry reaction

Richard 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.

“Mortgage rates of 4-5% are likely to be the new norm and while there is headroom for borrowing costs to fall further into 2025”.

Nicky Stevenson, MD 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,” she says.

“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.”

Ben Thompson, Deputy CEO at the Mortgage Advice Bureau, says: “This decision could’ve gone either way, but the Bank of England has rolled the dice, and now finally has sufficient confidence to cut rates for the first time since 2020.

“For homeowners and those who’ve been looking to get on the property ladder, the past few years have been tough, but there are signs of it already changing. Rates on mortgage deals have been falling, and it’d be feasible that more cuts will follow.”

Nathan Emerson, CEO of Propertymark, says: “Today’s rate cut it is excellent news for the housing market and no doubt a huge sigh of relief for those who have felt the pain of higher interest rates for the last two years.

“Summer is traditionally a busy time of the year for the housing market, and today’s base rate cut should hopefully provide a new wave of confidence and affordability for man,” he says.

“With a new government in power that is committed to delivering near two million new homes Propertymark hopes today news is a real turning point for homeowners and those who aspire to buy.”

Amy Reynolds, Head of Sales at Antony Roberts, says: “In our offices, we have been hearing increased talk about the prospect of interest rates falling, with vendors hoping and buyers wishing that this will happen imminently.

“However, buyers need to be careful what they wish for as cheaper mortgages will almost certainly mean higher asking prices. If we see a flurry of new applicants coming back to the market, encouraged by cheaper mortgage rates, then these higher prices are likely to be achieved.”

Kevin 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,” he says.

“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.”

Matt Thompson, Head of Sales at Chestertons, says: “Some buyers eagerly anticipated a cut of interest rates in order to pursue their property search.

“Last month, we witnessed the return of some buyer confidence as lenders introduced slightly more attractive mortgage products and the Bank of England’s decision to also cut rates will fuel buyer activity further over the coming months.”

Nick Leeming, Chairman of Jackson-Stops, says: “The Bank of England has today held firm in its commitment to cut the base rate to 5%, the first rate cut since 2020.

“Despite goods inflation unexpectedly remaining stubbornly high in June, the recent General Election result has positioned the UK well for a period of greater certainty – something that had been well missed in recent years,” he says.

“For the property market, the hope is that a cut to the base rate will stimulate greater optimism and activity from buyers and sellers, with the likelihood that a reduction in mortgage rates will follow suit swiftly to ease affordability decisions.”

Simon Gammon, Managing Partner at Knight Frank Finance, says: “Today’s decision will have a limited impact on mortgage rates, but it will be transformative for sentiment.

“There is a meaningful group of buyers that put off moving home in the wake of the mini-budget that can now push on with confidence. The Bank of England has been particularly cautious, so by opting to cut the base rate it has sent a real statement that inflation is largely beaten,” he says.

“The lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates. That said, we’ve seen that the larger lenders are happy to take a hit to profits to gain market share, so we may well see another round of marginal cuts in the days ahead.”

Mark Harris, CEO at SPF Private Clients, says: “Finally, the Bank of England has made its much-anticipated move and cut interest rates from a 16-year high.

“This will give borrowers an affordability boost, ease pressure on household finances and in doing so, assist the wider economy,” he says.

“Even if the new Labour Government manages to magic up an additional 300,000 homes this year, there is still a serious affordability issue for first-time buyers. Any base rate reductions will be passed on via lower standard variable rates and to some extent headline rates, which will have a positive impact on borrowing boundaries.”

Iain 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,” he says.

“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.”

Guy Gittins, CEO at Foxtons, 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 per cent,” he says.

“With interest rates now starting to fall, we only expect that these positive property market trends will intensify.”

Jonathan Samuels, CEO 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,” he says.

“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.”

John Phillips, CEO of Just Mortgages and Spicerhaart, says: “At long last, the Bank of England has finally made the right decision and cut the base rate. The reality is this needed to happen, not just to breathe some life into the economy, but to help take some of the pressure off borrowers – particularly those on a tracker or on SVR.

“While we may not see lenders react instantly to today’s news – as many have already priced in a cut and made reductions accordingly – it’s likely to be the starting pistol for increased competition amongst lenders. All have their own targets to hit and need to lend to make money, so it’s only right to expect greater activity as they look to increase volumes and market share,” he says.

“Today’s news will likely be the impetus for many potential borrowers or movers to return to the market and get their plans back on track.”

Gareth Lewis, MD at MT Finance, says: “Today’s announcement is a positive move that will surely invigorate consumers as affordability becomes more achievable.

“However, there must be a mindful eye kept on inflationary figures before the MPC meets again, and the government needs to play its part in continuing a positive market stimulus.”

Matt Smith, Mortgage Expert at Rightmove, says: “The highly anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue.

“This sets us up for hopefully further cuts to come, and when we have seen further reductions to the base rate, people should really start to see the impact,” he says.

“However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%.”

Sam Mitchell, CEO at Purplebricks, says: “The housing market is finally kicking back into action following a pause for breath around the General Election. The Bank of England’s decision to cut interest rates today will supercharge this recovery.

“Already, buyers are leaving the market lull behind to forge ahead with purchasing decisions. However, for first-time buyers, the primary challenge remains firmly in place: the rental market is still a complete mes,” he says.

“Labour will need to push ahead with their plans to ‘get Britain building’ and construct more social housing if it’s to lower the barriers to homeownership for first-time buyers. The hope is that these measures, when combined with rates coming down for landlords, should make the rental market more bearable for tenants and help them save for a deposit to finally become a homeowner.”