12:18 PM, 6th February 2025, About 4 hours ago
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The Bank of England’s Monetary Policy Committee (MPC) hawks came out on top today, voting 7-2 to cut the Bank Base Rate by 0.25%, bringing it down from 4.75% to 4.5%.
In a surprise move, two members pushed for a much bigger cut to 0.5%, hinting that more rate cuts could be on the cards.
This is the first rate cut of 2025, taking the base rate to its lowest level since June 2023, following new data showing inflation unexpectedly dropped to 2.5% last month.
The MPC summary reported: “Seven members preferred to reduce Bank Rate to 4.5% at this meeting, on the basis that there had continued to be sufficient progress on disinflation in domestic prices and wages.
“Looking through the expected near-term pickup in CPI inflation, the disinflation process had remained on track, and weakening activity and a looser labour market could weigh further on inflation. There was increased uncertainty around both the UK and global economic outlooks, with potentially countervailing forces acting on the prospects for domestic inflation. This warranted an approach to policymaking which was both gradual in continuing to lean against the persistence in inflation and careful in recognising increased uncertainty and that there were two-sided risks to inflation.
“On another view, the upside news in indicators of pay growth and inflation over recent quarters, in parallel with continued weakness in activity, was symptomatic of constrained supply relative to demand. In large part, this reflected tepid productivity growth, which was unlikely to recover significantly over the forecast period.
“On this basis, weakness in observed activity and employment going forward could continue to reflect constrained supply rather than an accumulation of economic slack. This view continued to warrant a cautious and gradual removal of monetary policy restriction.”
Despite, a widely expected interest rate cut, many property industry experts say the cut is a step in the right direction.
Nick Leeming, Chairman of Jackson-Stops, comments: “While the Bank of England’s decision may not have been a surprise, it will certainly be welcomed. With expectations that there will be a series of incremental cuts to the base rate this year, this is a vote of confidence from the Bank of England in the markets more widely.
“While some economic volatility continues to weigh on the minds of decision makers, the Government’s staunch commitment to boosting growth alongside the ECB recently cutting rates – and the Fed expected to do the same – made the Bank of England’s decision a necessity.
“For buyers and borrowers, any cut to the base rate is a positive step, however the trickle down to mortgage rates may not be so immediate. There remains lots for prospective buyers to be positive about. Inflation is much lower than a year ago and the tide has now turned on interest rates, which will ease affordability in the mid- to long-term. We are still seeing a strong level of commitment to the market and sales progressing at the end of last year with confident pricing. We expect activity levels to persist with Stamp Duty changes in March motivating quick completions.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “The bank rate cut has been widely expected though its impact on the housing market is unlikely to be significant, at least immediately.
“However, confidence is vital to improving activity, not just when it comes to buying and selling houses but the wider economy, and even a small reduction is welcome.
“The housing market certainly needs a shot in the arm as many have been taking too long over decisions, although demand has certainly picked up since the stat of the year.
“On the plus side, in our offices we haven’t seen transactions failing or heavy renegotiations, with most sales proceeding – albeit sometimes painfully slowly.”
Richard Donnell, executive director of Zoopla, said: “Today’s cut to the base rate will provide a boost to market sentiment for home buyers, more than a boost to buying power.
“The path of base rates is already priced into fixed-rate mortgages which account for the majority of new mortgages. It’s positive that 2025 is starting with lower mortgage rates than the last two years. The average 5-year fixed rate at 75 per cent LTV is 4.4 per cent while a 2-year fix is at 4.6 per cent1 (Bank of England Bankstats).
“Greater stability in borrowing costs has brought more buyers and sellers back into the housing market having delayed moving decisions as rates spiked higher.”
CEO of specialist lender Octane Capital, Jonathan Samuels, commented: “A reduction to the base rate is certainly positive news, however, it’s the swap rates market that dictates the level of mortgage affordability passed onto the nation’s home movers.
“The good news is that the mortgage sector has been responding well ahead of today’s decision and, not only have we seen swap rates start to reduce over the course of this month, but many lenders are already reducing their mortgage rates in response.”
Robert Sadler, Vice President of Real Estate at Excellion Capital: “This rate reduction takes us one step closer to where we need to be. But property investors will welcome this news with more than a little caution. While this decision may result in lower interest rates, it still doesn’t feel like we’re approaching the end of the UK’s economic uncertainty.
“Last autumn’s inflationary budget and Labour’s handling of the economy to date have created a lack of confidence among both investors and lenders. In fact, such is the negative sentiment right now that we are seeing lenders demonstrate an unwillingness to even consider incredible deals, particularly retail deals, where the assets are being bought at historically cheap prices with yield potential of 16%. This is despite experienced sponsors with solid business plans.
“If this negative sentiment has any chance of lifting, we’re going to need more proof from this government that they can manage the economy effectively and in favour of the investors who are, let’s be frank, at the centre of helping the economy grow.”
Co-founder and CEO of GetAgent.co.uk, Colby Short, commented: “The move to lower interest rates is no doubt the right one as inflation levels have remained broadly stable for some months now.
“We’ve already seen the mortgage industry react positively in anticipation of today’s news, as swap rates have fallen and many lenders have moved to lower the mortgage rates on offer.
“So whilst the property market may currently be benefiting from a minor surge in activity ahead of April’s stamp duty deadline, today’s decision should act as a further shot in the arm, although we expect the long-term picture to be one of more measured growth, with market momentum building gradually as the picture continues to improve.”
CEO of Yopa, Verona Frankish, commented: “Despite the fact that interest rates haven’t fallen at the speed we expected, we’ve seen a strong and consistent level of buyer activity sweep the property market over the last year and, with a further reduction today, we expect this to remain the case as we look to the year ahead.
“Of course, mortgage rates currently remain far higher than today’s home movers have become accustomed to in recent years and so a degree of caution is advisable. However, we’re already seeing lenders react positively by reducing rates and we expect the picture to continue to improve over the course of the year where mortgage affordability is concerned.”
Nathan Emerson, CEO of Propertymark, comments: “Despite widespread uncertainty and the Bank of England expecting inflation rates to increase to 2.8% by the third quarter of 2025 before easing again, today’s announcement comes as welcome news for many.
“It’s now likely that mortgage borrowing takes the same path and dips slightly which will, in turn, help ease the strain on people’s finances and improve their chances of homeownership. This extra boost in affordability and confidence is needed, and we look forward to hopefully seeing new and improved mortgage products enter the market over the coming weeks.”
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