The Bank of England’s Monetary Policy Committee (MPC) announced a reduction in interest rates on the 1st of August 2024, cutting the base rate by 0.25% to 5%. It’s the first interest rate cut since August 2023, after 14 consecutive rate hikes, and signals a potential turning point for the UK economy and, notably, the property market. Here’s how.
Cheaper mortgage deals for buy-to-let investors
One of the most immediate effects of the interest rate cut will be seen in the mortgage market. With the base rate reduced, mortgage lenders are already offering more competitive mortgage deals.
Lower interest rates translate to lower monthly mortgage repayments, making it more affordable to purchase rental properties. This could encourage new investors to enter the buy-to-let market and existing landlords to expand their property portfolios, increasing the supply of rental properties in the UK. It should also offer some hope to Landlords whose fixed rates are about to expire that there may be more options open to them than before.
Paul McKendry, Director & Financial Adviser at McKendry Dunion Financial, highlights the market’s reaction: “The reduced interest rate brings some positive news for the property market after a lacklustre few months. It’s good to see lenders starting to reduce their rates in the hope of boosting consumer confidence. They seem keen to capture the first wave of consumer activity by pricing some of their new mortgage products under 4%”
Increased demand for rental properties
As mortgage rates become more attractive, the property market could see a surge in activity. However, for many potential homeowners, the journey to property ownership remains challenging due to stringent lending criteria or insufficient deposits. This scenario creates a larger pool of people who will continue to rely on rental properties, thereby increasing demand in the lettings market.
Stabilising the property market and reducing uncertainty
The recent interest rate cut has brought a renewed sense of confidence to the property market and a more positive outlook. This could lead to greater stability, with fewer landlords looking to offload properties due to concerns about future rate hikes.
Paul adds, “We could expect to see more rate reductions over the coming weeks, with possibly some added incentives such as first-time buyer cashbacks being introduced. This could be the boost the property market needs, setting up both landlords and tenants for a successful end to 2024.”
Potential for future rate cuts
Governor Andrew Bailey has previously hinted that the Bank of England could reduce rates faster than expected. It’s most likely that changes will be modest but lower rates reduce borrowing costs, making it a more attractive environment for investors to purchase rental properties.
Long-Term Benefits for the Lettings Market
While the immediate impact of the interest rate cut will be felt in mortgage repayments, the long-term benefits could be even more significant. As inflation is expected to remain near the Bank of England’s target, the economy could stabilise, leading to more sustainable growth in the property market.
For landlords, this means the potential for steady rental income over time, with less concern about sudden spikes in mortgage rates or drastic changes in tenant demand. For tenants, a stable rental market could mean fewer fluctuations in rental prices and greater security in their housing choices.
If you need to renew your mortgage or are looking for general advice, we can recommend speaking to the team of experts at McKendry Dunion.Find out more here
