The Bank of England’s first interest rate cut in four years sparked an immediate boost in Britain’s property market, with lower mortgage rates stimulating buyer interest and driving up house prices.
Data from property website Rightmove showed that the number of potential buyers enquiring with estate agents about homes for sale since August 1 has risen 19% compared with the same period last year. In July, enquiries were up 11% compared to the previous year.
The bank on Aug. 1 cut interest rates for the first time since the coronavirus pandemic began, easing pressure on households after raising borrowing costs to their highest since the 2008 financial crisis to tackle soaring inflation.
The central bank cut its key base rate to 5% from 5.25% after inflation returned to normal this year. Figures last week showed inflation rose to 2.2% in July, above the central bank’s 2% target, but remains well below a peak of 11.1% two years ago, when Russia’s invasion of Ukraine sent energy prices soaring.
Rightmove said banks’ lower borrowing costs had accelerated the availability of low-interest mortgages from major lenders, which in turn had contributed “significantly” to improving buyer demand.
The bank said upcoming bank interest rate cuts would help the property market boom in the autumn and raised its house price forecast to a 1% increase in asking prices for new sellers, from a 1% fall for the whole of 2024.
Financial markets widely expect the bank to cut interest rates further, possibly to 3.5% by the end of next year, as inflation pressures weaken. The bank is expected to keep rates on hold when it next meets in September and resume cutting borrowing costs in November.
Bank of America Governor Andrew Bailey is due to speak on Friday at the annual meeting of U.S. central bank policymakers in the Rocky Mountain resort of Jackson Hole.
Rightmove said the average asking price for new sellers fell 1.5%, or £5,708, this month to £367,785. Prices are typically lower in August than in July, when the property market is quieter. The fall is in line with the long-term average for the past 18 years.
“With the summer holiday season drawing to a close, conditions are ripe for a more active autumn market,” said Tim Bannister, director of property science at Rightmove. “Homebuyer response to what will hopefully be the first of several rate cuts over the next year or two, combined with other favourable data and trends, has led us to raise our price forecast for this year.”
These figures come as big lenders are lowering borrowing costs for new mortgages in anticipation of central bank interest rate cuts. The average five-year fixed-rate mortgage is currently at 4.80%, higher than three years ago, before the first of 14 consecutive central bank rate hikes, but down significantly from the 5.82% it will be at this point in 2023, according to Rightmove.
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The latest figure is the lowest since Chancellor of the Exchequer Liz Truss’ mini-Budget in September 2022.
Real estate agents said bank interest rate cuts, as well as greater political certainty and a brighter economic outlook following Labour’s landslide victory in July’s general election, were also boosting buyer interest.
Josephine Ashby, managing partner at John Bray Estate Agents in Cornwall, said: “Despite the result not being a huge surprise to the country, there has undoubtedly been a slowdown in activity in the run up to the general election. Now that the election is over and the political and economic situation is more certain, buyer interest is picking up.”
But borrowing costs remain higher than they were three years ago, making home buying difficult for millions of families.
Tom Bill, head of UK residential research at Knight Frank, said: “The market is pricing in further price cuts in 2024, which means transaction volumes will be higher this autumn than last year. That said, uncertainty around the budget and a wave of people exiting favourable mortgage deals will cap price growth, which we expect to be 3% in the UK this year.”
