Interest rate cut fuels immediate upturn in UK property market

The first Bank of England rate cut in four years has triggered an immediate upturn in the UK property market, as cheaper mortgages prompt interest among buyers and drive up house prices.

Figures from the property website Rightmove show the number of potential buyers contacting estate agents about homes for sale since 1 August jumped by 19% compared with the same time a year ago. Contacts in July were up 11% on the previous year.

The Bank cut interest rates on 1 August for the first time since the start of the Covid pandemic, easing pressure on households after it had raised borrowing costs to the highest level since the 2008 financial crisis to tackle soaring inflation.

It cut its key base rate from 5.25% to 5%, after a fall in inflation back to more normal levels this year. Figures last week showed inflation rose to 2.2% in July , above the Bank’s 2% target. However, it remains significantly lower than a peak of 11.1% two years ago after the Russian invasion of Ukraine triggered a surge in energy prices.

Related: UK house prices ‘to rise through rest of year’ after jump in July

Rightmove said the Bank cutting borrow costs had helped to accelerate the availability of cheaper mortgages from high street lenders, alongside contributing “significantly” to improved buyer demand.

It said future Bank rate cuts would establish a buoyant autumn property market, and it upgraded its house price forecasts from a 1% drop over the whole of 2024 to a 1% rise in new seller asking prices.

Financial markets widely expect that the Bank will react to fading inflationary pressures by cutting rates further, possibly to as low as 3.5% by the end of next year. The Bank is expected to keep rates on hold at its next meeting in September before restarting reductions in borrowing costs in November.

Andrew Bailey, the Bank’s governor, is expected to speak at the annual US gathering of central bank policymakers at the Rocky Mountains resort of Jackson Hole on Friday.

Rightmove said the average new seller asking price had fallen this month by 1.5%, or by £5,708, to £367,785. Prices typically fall in August from July during the quieter months for the property market. The fall was in line with the long-term average for the last 18 years.

“As the summer holiday season comes to an end, the conditions are there for a more active autumn market,” said Tim Bannister, Rightmove’s director of property science. “The reaction from home-movers to what is hopefully only the first of several rate cuts over the next year or two, combined with other positive data and trends, has led us to raise our price prediction for the year.”

The figures come as high street lenders reduce the borrowing costs on new mortgages in anticipation of the central bank lowering interest rates. Rightmove said the average five-year fixed-rate mortgage was now 4.80% – still higher than three years ago, before the first of 14 consecutive Bank rate increases, but significantly down from 5.82% at this point in 2023.

The latest figure is the lowest since around Liz Truss’s mini-budget in September 2022.

Estate agents said that alongside the Bank cutting rates, increased political certainty after Labour’s general election landslide in July and a brighter economic outlook were also helping with buyer interest.

Josephine Ashby, a managing partner at John Bray Estate Agents in Cornwall, said: “There is no doubt that activity slowed in the buildup to the general election despite a result that was no great surprise to the country. With the election now behind us we are seeing an improvement in buyer engagement as more certainty in the political and economic landscapes forms.”

However, borrowing costs are still higher than three years ago, while housing affordability remains stretched for millions of families.

Tom Bill, the head of UK residential research at Knight Frank, said: “Markets are pricing in a further cut in 2024, which means transaction volumes should be stronger this autumn than last year. That said, uncertainty surrounding the budget and wave of people rolling off favourable mortgage deals will keep a lid on price growth, which we expect to be 3% in the UK this year.”