The Bank of England’s recent rate cut is a welcome move and one that was needed given the economic performance this year. With inflation now below the 2% target and a new government working to build positive momentum heading into 2025, things are looking up.
Property investors are likely to be encouraged by the rate drop, and we’re already seeing renewed interest post-election. This is expected to keep growing, especially with the stability the new government brings for the next 4-5 years—there’s a lot of confidence in the market right now.
That said, we probably won’t see any huge financial shifts. Lenders have already factored in the expected rate drops, but this move from the Bank of England signals their readiness to start lowering rates. We can likely expect further cuts in early 2025.
Still, this rate cut might be a bit of a double-edged sword for property investors.
On one hand, lower interest rates make borrowing cheaper, which should help buyers and those refinancing. Even a small dip in mortgage rates could open up opportunities for investors who’ve been sitting on the sidelines. On the other hand, there might be a slowdown in rate cuts from here, as inflation is still a concern. The Bank has made it clear that it will be watching inflation closely, especially with the extra fiscal stimulus from the recent Budget. This means we might not see the big drops in rates that many investors are hoping for.
However, let’s not forget that the Bank of England’s rate cuts don’t instantly translate to cheaper mortgages, especially for those on fixed rates. People who locked in rates a couple of years ago when they were higher might not see any relief just yet. That said, tracker mortgages and people looking to secure new loans could benefit from this. The property market may also start to see more activity as people adjust to the slightly lower rates, which could stabilise property prices in some regions.
I think it’s also crucial to point out that despite the rate cut, the mortgage market isn’t operating in a vacuum. Lenders are still being cautious, and the volatility we’ve seen in the wake of the mini-budget last year has made banks more selective. Yes, there might be some immediate relief for tracker mortgage holders, but for anyone hoping for drastic changes to fixed-rate deals, it’s going to take time. If the government continues to boost public spending, as we saw with the recent budget, this could ultimately keep inflation slightly elevated, which might mean that rates stay sticky longer than expected.
As we’ve seen, when inflation rises even slightly, it can have an outsized impact on construction costs. For developers, it’s about more than just interest rates. Higher costs for materials and labour, driven by inflation, could mean more expensive new builds and less margin for error. Lower rates might stimulate demand, but if costs keep rising, those price increases could get passed down to buyers, potentially hurting affordability. It’s something we’ll have to keep an eye on.
With all that in mind, property investors should stay cautious but optimistic. The key is to remain flexible. If you’re in a position to buy, look for opportunities in areas where demand remains strong despite potential inflationary pressures. There may be more opportunities in smaller markets where price growth isn’t as volatile. For those holding onto properties, it’s also worth considering refinancing, if you’re coming to the end of a fixed-rate term.
I’d also add that we need to consider the long-term trajectory.
This rate cut isn’t likely to be the end of the story. While the Bank has signalled gradual future cuts, it’s clear they’re mindful of inflation. As such, property investors need to plan for a market where rates are not going to fall dramatically anytime soon. That means thinking strategically about both debt and asset allocation. Diversifying portfolios could be key.
