As widely predicted by economists, the Bank of England today cut the base rate for the first time in seven years, bringing it to a record low of 0.25 per cent.
The Bank's Monetary Policy Committee has responded to mounting pressure to act following poor economic data since the EU referendum.
In addition to the base rate cut, the Bank has authorized a further £60bn of government bond (Gilt) purchases, £10bn in corporate bond purchases and a new scheme to ease the funding costs of banks, potentially worth up to £100bn. The Bank’s intention is to offset the negative impact of the cut in the base rate on lenders’ profit margins and alleviate the risk of a reduction in lending to households and businesses.
Although there is no certainty yet on how the cut will impact on mortgage rates, it is expected to lead to increased confidence and affordability within the property market.
Fairview International's Joe Joshi said: “This cut can only be seen as good news for the property market as it will increase buyer affordability and help first-time buyers and those wanting to move up the housing ladder. The opportunity to secure a very low fixed-rate mortgage and be certain of mortgage outgoings for some time will give buyers greater stability and confidence and thereby stimulate demand.
The cut will also be good for the buy-to-let market. Low interest rates and borrowing costs will increase the appeal of buy-to-let as an alternative to savings and other investments, which are simply unable to compete with the returns property can offer. With rental yields of around 4-5 per cent – which are typical for a good buy-to-let – along with long-term capital growth prospects, investment in bricks and mortar is more enticing than ever.”
The minutes of this month’s Monetary Policy Committee meeting strongly suggest interest rates could be cut further later this year if the economy continues to weaken in the coming months.
Fairview International expects strong ongoing demand to underpin house prices and for the market to remain resilient as the UK navigates its way through Brexit.
For expert advice on buying, selling, letting or renting contact us at Fairview International on 020 3011 0177 email us at info@fairviewipc.com.