"Low and stable inflation is the foundation of a healthy economy and it's the Bank of England's job to ensure that"
- Andrew Bailey - Bank of England
The Bank of England's Monetary Policy Committee has voted 7-2 to reduce interest rates by 0.25% - a decision widely expected and celebrated by the UK property sector as the Bank shifts its focus away from tackling inflation which remains relatively stable and decreasing to 2.5%, despite being higher than the target rate of 2.0%
Andrew Bailey, the Bank's Governor, said: "It will be welcome news that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.
"Low and stable inflation is the foundation of a healthy economy and it's the Bank of England's job to ensure that."
The last rate cut came at the Bank's November 2024 meeting, when the MPC voted 8–1 to reduce the rate from 5% to 4.75%. In its last meeting, the Committee voted 6-3 to hold interest rates at 4.75%.
The property industry reacts
Simon Gammon, Managing Partner, Knight Frank Finance, said: "This is positive for borrowers -- interest rates are moving in the right direction, albeit slowly. However, we don’t expect mortgage rates to fall immediately. Today’s reduction was already ‘priced in’, and we’ll need a material shift in the outlook to enable mortgage rates to fall meaningfully.
"When that does come, we'd expect lenders to cut mortgage rates quite quickly. The banks are eager to make up for ground lost during the past two years of economic uncertainty and sluggish activity."
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.”
Alpa Bhakta, CEO of Butterfield Mortgages Limited, said: “With Monetary Policy Committee decisions being the most significant driver of market sentiment, today’s rate cut should precede more activity as borrowing cost becomes lower. That said, challenges remain, and as lenders, we must continue to provide flexible solutions and bespoke support to ensure brokers and property investors are well-positioned to thrive as the economic outlook improves.”
Paresh Raja, CEO of Market Financial Solutions, said: "Today's decision was widely expected, and there’s been plenty of evidence of lenders changing their rates over recent weeks ahead of the base rate being cut. But it is another positive step nonetheless, and it will likely bring more buyers into the market.
"As ever, no sooner has the Bank of England delivered one decision than speculation begins about when it might cut the base rate again. The forecasts still suggest there could be anything between one and three further drops this year, but such predictions are sensitive to other trends, such as the performance of the economy and the rate of inflation. For now, the focus from lenders and brokers has to be on taking a pragmatic, responsive approach, ensuring they support borrowers as best they can, particularly if a wave of new prospective buyers and investors does enter the market."
Darrell Walker, Director of Sales & Distribution at ModaMortgages, said: "Any decision to cut the base rate will stimulate the market, giving borrowers a shot in the arm. However, while today's news was expected, the bigger question remains where the base rate will go in the next 12 months, and this, as ever, is far from certain.
"As a lender, we understand that rates will dominate conversations between buyers and brokers, but it is also vital that the service we provide is as painless as possible. Brokers want easy applications, swift decision-making and honest conversations; amidst rate fluctuations and base rate speculation, lenders cannot overlook the importance of delivering a great service, which will enable brokers and their clients to act with speed and confidence."
Ross Turrell, Commercial Director of CHL Mortgages, said: “We expect this rate cut to act as a catalyst for what is already shaping up to be a buoyant market in 2025. Buyer demand and transaction levels are rising, and any reductions to the cost of borrowing will certainly sustain this momentum. With further rate cuts anticipated this year, it feels as though we are returning to a more stable and, dare I say, ‘normal’ investment landscape.
“With upcoming stamp duty reforms also on the horizon, February and March are set to be particularly busy months as buyers move quickly to complete on purchases before April's tax changes. It is therefore essential that lenders and brokers prepare for heightened market activity, ensuring their clients are in the best possible position to seize the opportunities this rate cut presents.”
Tim Parkes, CEO of RAW Capital Partners, said: "The market had already priced in a cut, so today's decision almost felt like a foregone conclusion. As a result, lenders' rates have fallen throughout January, and there has been a clear uptick in the number of investors and buyers coming to market – this momentum will be maintained by a more relaxed monetary environment.
"For international property investors, the direction of GBP should be of particular interest in the aftermath of the BoE meeting. Rate cuts typically lead to a decline in the value of the Pound, which could present opportunities for relative discounts on UK property for investors holding other currencies. This could lead to an uptick in enquiries from overseas in the coming months, particularly if further rate cuts are made on Threadneedle Street.
"As the market continues to heat up post-cut, speed will be an essential quality for investors and brokers to seek out among lenders. Those that are able to provide decisions within days of an inquiry will rise to the fore and allow investors to take advantage of the opportunities that an improving investment landscape will provide."
Thomas Cantor, Co-Head of Short-Term Finance at West One Loans, commented: “Whilst inflation has crept above the Bank of England’s target of two per cent in recent months, the rate of inflation seen over the back end of last year has remained largely stable and significantly below the peak seen towards the end of 2022.
"So today’s base rate cut was largely expected and whilst it may only be a small step in the right direction, the hope is that this trend will continue over the course of the year, bringing some much-needed impetus to the economy, helping to drive further positive sentiment in 2025.”
Stephanie Daley, Director of Partnerships at mortgage advisor Alexander Hall, commented: “The Bank of England’s decision to reduce interest rates to 4.5% will come as a welcome one to the nation’s homebuyers, bringing a much-needed boost to property market sentiment, following the slight upward pressure on prices caused by increasing inflation levels in recent months.
"However, with the level of inflation remaining above the Bank of England’s two per cent target, it’s likely that lenders will continue to act with vigilance and we can expect this ongoing uncertainty to be reflected in mortgage pricing.
"So whilst we are heading in the right direction and some lenders are reducing their rates, those planning their move should continue to seek the advice of an expert mortgage advisor to ensure that they are securing the very best rate available to them in the current market.
"One potentially positive outcome will be the reduction in certain lenders stress rates, which could give a bit more flexibility in affordability for customers and possibly give them more buying or remortgage options”
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 a 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.”
