The Bank of England has, as expected, cut its base rate to 0.25 per cent after a record seven years at its previous historic low of 0.5 per cent.
Today’s cut may be an important psychological boost to markets and manufacturers but it is uncertain what its impact will be on house sales.
Firstly, it is not clear whether high street mortgage lenders will follow suit and cut their interest rates for borrowers - most are under no compulsion to do so. Secondly, the number of buyers with tracker mortgages that to some extent mirror the movement of the BoE base rate is far smaller than before, as increasing volumes of people have arranged fixed-rate deals ahead of what many expected to be an interest rate rise, rather than a cut.
“Today’s rate reduction will have little impact on the mortgage market. Banks already have very tight margins and may want to focus on savers who are struggling to earn a decent return, rather than cutting rates further for borrowers” cautions Adrian Anderson, director of mortgage broker Anderson Harris.
Even so, agents have welcomed today’s decision.
Michael Bruce, chief executive of hybrid agency Purplebricks, says he welcomes anything which makes home ownership more affordable. “A reduction in interest rates, however small, should result in lower mortgage costs. There is much more to be done though to solve the housing crisis facing people, whether they are renting or seeking to own their own property.”
“We have seen many first-time buyers already benefiting from low mortgage rates and being able to enter the market, and a drop in rates will provide an additional boost for those who have been sitting on the fence and holding off making a property purchase decision,” says Séamus Kavanagh, chief executive of Townends Estate Agents.
Jeremy Leaf, north London estate agent and a former RICS chairman, says the move “will provide consumers with an added incentive to make the decision to buy or remortgage.”
He says confidence had been hit since the referendum. “We think this cut is particularly aimed at longer-term investment decisions on the development side, rather than individuals taking out mortgages. Critics may say it is too early for hard data as to how the economy is faring but the Bank will be privy to information behind the scenes which may have made a rate cut a prudent step” says Leaf.
Russell Quirk, founder of online agency eMoov, says the news “is the antidote for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.”
* If you want to read more about Brexit and its impact on agency and the wider property industry, see Marc Da Silva’s articles on Brexit and the Northern Powerhouse and What will happen to the housing market if Britain leaves the EU?