The decision by the Bank of England to cut interest rates in the UK to their lowest ever level at 0.25% is not expected to have a major impact on the general property market but it is a signal that borrowing on a home is not likely to rise in the near future.
It is the first time that the interest rate has been cut for seven years and some experts had even been predicting that it might rise but the potential economic fallout due to Brexit has ensured that borrowing will remain historically low.
However, some parts of the real estate market could see an effect. According to Andy Pyle, UK head of real estate at KPMG, it will depend on location and price. ‘Whilst a number of overseas investors are being cautious, others are attracted by the depreciation in sterling enabling them to buy more cheaply, and the reduction in interest rates has already had an impact on the value of the pound,’ he said.
Adam Challis, Head of residential research at JLL, pointed out that the reduction will signal to mortgagors that cheap mortgage rates will be around for even longer. ‘This will benefit many would be home movers and we are encouraged by the Term Funding Scheme that will ensure lenders pass on most of the rate reduction to consumers,’ he said.
‘More important for the housing market is a strong, stable economy and the rate cut will help. Post-referendum we need greater certainty that will encourage house builders, protect jobs, and ultimately provide a range of housing that people can afford,’ he added.
While it will be welcomed by many home owners, Mark Hayward, managing director, of the National Association of Estate Agents (NAEA) explained that for future first time buyers saving for a deposit on their first home they face getting less interest on these savings.
‘It represents a body blow for savers and those hoping to get their first foot on the property ladder. Home owners with outstanding mortgages are currently enjoying some of the lowest fixed rate mortgages seen for a long while, with lenders battling it out to offer the cheapest deal. Cutting interest rates further is likely to improve confidence among those prospective house-buyers who may have put their search on hold, following the Brexit vote in June,’ he said.
‘But for those saving to pay a deposit on a future home, the interest rate cut will be frustrating. The last government focused heavily on supporting first time buyers with the introduction of schemes such as Help to Buy. Many of those looking for help now will have to wait for initiatives such as the Lifetime ISA to launch, which will then only help those under 40 to save for a home,’ he pointed out.
‘The outcome of the today’s rate cut is simple in that we will see aspiring homeowners saving harder for longer, which will no doubt have an impact on the number of first time buyers succeeding in their dream of acquiring their own home,’ he added.
Those who will see an immediate effect is home owners with tracker mortgages, according to Ian Westerling managing director of estate agents Humberts, but he believes it welcome news for the property industry post Brexit and will inject an energy into the late summer sales market.
‘We expect to receive healthy interest especially from downsizers looking to re mortgage and release equity for their retirement together with first time buyers who may now be able to get a foot on the property ladder,’ he added.
Stephanie McMahon, head of research at Strutt & Parker, also believes that there will it will result in a spurt of remortgaging. ‘Rates were already at record low levels, however a further drop may see lenders whose margins allow seeking to be competitive. As such we can anticipate those who have sufficient savings to meet the loan to value criteria seeking to capitalise,’ she said.
Stephen Stone, chief executive of home builders Crest Nicholson, pointed out that lower interest rates will help the house building industry too. ‘With interest rates and unemployment now at an all-time low, now is a great time to buy and we can expect a boost to the economy and in particular the house building industry with renewed confidence amongst potential home buyers,’ he said.
Lenders may pass on the cut in a bid to attract more borrower, according to Jonathan Hopper, managing director of the buying agents Garrington Property Finders. ‘With softening prices, increasing flexibility from sellers, and historically low mortgage rates, we’re firmly into a buyer’s market. The mortgage business is hardly brisk at the moment, so lenders may well seek to grab customers from each other by launching new products and offers as a result of the cut,’ he said.
But he pointed out that it won’t help boost the property industry that much. ‘In the context of the housing market, today’s interest rate decision is in reality just a sticking plaster which fails to solve a deeper underlying issue. With property transaction volumes all but drying up, what’s urgently required is direct government action to reduce the costs of moving,’ he suggested.
‘For many home owners in London and the South East especially, the call on cash to fund skyrocketing stamp duty costs has become an insurmountable barrier, blocking their progress up the housing ladder,’ he explained.
‘Post-Brexit, what the market really needs is a balanced stimulus package to get Britain moving, without further increasing house prices. The Chancellor and Governor of the Bank of England are unlikely to find better ways to boost the wider UK economy,’ he added.