UK Property – Bank of England base rate now down to 1%

Liam Bailey, head of residential research, commented:

"The decision to cut the base rate is welcome, although unlikely to have a dramatic immediate effect on the housing market it will reduce costs for a portion of homeowners.

"The Monetary Policy Committee is clearly trying to get mortgage providers to increase their lending activity. Rate cuts should reduce the wholesale cost of funding, making loans and mortgages cheaper to both the lender and the borrower. Reducing base rates on the scale of recent months would normally help to boost the amount of new lending.

"However, base rates at such historically low levels mean that the returns on savings have become negligible, discouraging large numbers of people from depositing money in banks. This lower cash flow is further discouraging banks from lending, exacerbating the problem the government is trying to solve.

"We are now witnessing first hand just how blunt the main tool of the Monetary Policy Committee is. In fact, the lower the MPC has taken the base rate, the blunter that tool has become.

"There are signs that activity is returning to the housing market, however prices will continue to be constrained by the difficulty many people will have in obtaining mortgage finance. Lenders continue to demand high loan-to-value ratios and remain very cautious over both lending criteria and property valuations.

"The cuts may help to stimulate the economy and therefore the housing market later this year, however – but this will not be apparent for at least six months."

Courtesy: Knight Frank Residential Research

For further information, please contact:

Liam Bailey, head of residential research, Knight Frank,
Tel: +44 (0) 7919 303 148
Email: [email protected]