In a significant move, the Bank of England (BoE) has announced a cut in interest rates from 5.25% to 5%, marking the first reduction since the onset of the COVID-19 pandemic in March 2020. The decision, made by a narrow majority of five to four within the BoE’s rate-setting committee, reflects the bank’s strategic response to ongoing economic challenges.
The BoE’s base rate serves as a crucial benchmark, heavily influencing the rates set by High Street banks and other money lenders. This reduction aims to alleviate the financial burden on borrowers, who have faced high costs for mortgages and loans due to the elevated rates implemented over the past few years to combat inflation. These high rates had resulted in increased borrowing costs, although savers benefited from better returns.
Industry expert’s reactions and comments on the interest cuts:
Paresh Raja, CEO of Market Financial Solutions, said: “The base rate has finally been cut, easing the barriers that have constrained the UK property market amid two years of high inflation and borrowing costs. I expect to see increased market activity in the coming weeks as a result.
“In recent months, we’ve seen a growing sense of optimism. With property prices and the volume of homes coming onto the market on the rise, today’s decision will likely encourage investors who have been holding back to re-engage. Despite the rate cut, however, borrowing costs remain extremely high, so flexibility for borrowers and brokers remains essential.
“Therefore, any potential rebound in the UK property market will hinge on the specialist lending sector. A recent survey shows that a substantial majority of bridging lenders expect loan volumes to rise over the next year. Given the uncertainty about future rate cuts, lenders should be offering a range of product options to accommodate brokers’ and borrowers’ needs and interest rate expectations. This will help them take full advantage of the opportunities created by the rate cut, even if further rate changes do not occur immediately.”
Jatin Ondhia, CEO of Shojin Property Partners, said: “The consecutive months of target level inflation were clearly enough for the Bank of England to finally give the green light to reduce interest rates. The decision is a key indicator of the growing sense of economic stability and will likely open up new opportunities for investors as they reassess how to manage their portfolios.
“The impact of the high inflationary-high interest environment of the last couple of years cannot be underestimated. Homeowners have faced higher mortgage rates than at any point since the financial crisis, while developers have found it harder to access much-needed finance. Today’s decision hopefully signals a clear transition away from this challenging period.
“Looking ahead, alternative investments are likely to play an increasingly important role in investors’ portfolios. While the base rate has now fallen, it’s from a 16-year high – interest rates still remain significantly above the levels that many landlords had become accustomed to before the hikes. As such, diversification will remain a prominent trend going forward, with a balance of savings products and lower-risk investments alongside higher-risk opportunities to provide potential for greater growth.”
Ben Nichols, Interim Managing Director at RAW Capital Partners, said: “The Bank of England clearly feel as though the perils of high inflation have been addressed by their action on interest rates and the rate hiking cycle has finally come to an end, allowing homebuyers, investors and BTL landlords alike to take a breath and plan their strategies with greater confidence and freedom. After rates reached their highest level in 16 years, today’s decision will provide much-needed relief, and I expect to see an uptick in activity in the UK property market as a result.
“Recently, sellers have flocked to put their properties on the market, and estate agents have noted an increase in buyer demand. What’s more, official figures show that house prices have grown for three consecutive months, while mortgage approvals have held steady near their highest level in 18 months. This indicates that the market was stabilising well before today’s rate cut. In this context, the additional impetus from the MPC today is likely to encourage hesitant investors and buyers to resume their investment plans.
“However, while we can celebrate a rate cut after two years of hikes and pauses, it is important to remember that rates are still very high in comparison to where they have been in recent memory. For a surge in activity to materialise, brokers and their clients must be equipped with the tools they need to confidently execute their investment plans. Lenders must recommit to offering a wide range of bespoke and flexible financial products to support the property market’s continued recovery.”
Jill Mackay, savings specialist at Scottish Friendly, comments on today’s MPC rate decision figures: “The peak of the base rate lasted just shy of one year, having risen meteorically in 2022 and 2023 in order to quell inflation. The cut is good news for households under mortgage pressure but will be bad news for savers who will begin to see their interest earnings slashed.
“Despite having risen like a rocket, it is likely that rates will now fall like a feather. With the economy growing better than expected, wages rising and employment still relatively robust, the bank will be keen to take a softly-softly approach in order to not reignite inflation. Where its neutral rate lies is an open question, but it will take time to arrive at.
“For households with mortgages this is modestly good news. But for savers it is a potential issue now for cash, especially seeing as easy access rates will be sensitive to cuts. For those considering their long-term savings plans it might be worth taking a fresh look at areas such as investments in order to give their funds a better opportunity for growth.”
James Burgess, head of commercial and insolvency expert at Atradius UK, says:
“Having held interest rates at a 16-year high of 5.25% for an entire year, businesses and consumers across the UK will be relieved at the outcome of today’s announcement with rates falling to a welcomed 5%.
“This positive outlook for the economy is also reflected in our own claims data with an overall decline of 17% in late and failed payments in Q2 2024 compared to Q1 2024. This trend has continued into the construction sector, following a 28% decline in late and failed payments in the sector in Q2 2024 compared to Q1, showing a step in the right direction for the sector following today’s rates cuts. This will also be welcome news to homeowners as the cut in rates alleviates their financial burdens around mortgage payments, putting the construction and housing sectors in an improved position as we progress through the second half of the year.
“For businesses, this news will mean that they can navigate the summer season with more confidence. Consumers may feel less restricted in terms of spending as this cut in rates could start to loosen purse strings. As well as a boost to consumer spending, business confidence and investments may improve over the coming months.
“Whilst we are not out of the woods yet, the outcome of today’s announcement is certainly a step in the right direction for the UK economy, offering hope as we move through the remainder of the year. With inflation rates remaining at their target of 2% and interest rates sitting at 5%, it’s safe to say that the economic position of the UK is improving. However, despite falling rates, the unpredictability of major world events, not least geopolitics and fears of war between Iran and Israel, mean it’s essential that businesses remain vigilant and protect themselves against the domino effect of insolvency with proactive financial planning. This includes increasing liquidity, diversifying supply chains, and protecting vulnerable credit agreements with trade credit insurance.”
Richard Carter, CEO of Lenvi:“Borrowers may breathe a sigh of relief as we finally start to creep back from interest rates that have been stuck fast at 16-year highs, with our latest research on consumer habits finding that four in ten (39%) borrowers listed low interest rates as their biggest priority when choosing a lender.
“Homeowners whose mortgage fix comes to an end will find they can get a slightly better deal, as lenders have already began reducing rates in anticipation of a cut.
“First time buyers haven’t had much good news, but the start of rate cuts should make their path to home ownership that little bit less arduous.
“It’s only a start, and borrowing remains expensive compared with 2021, when the Bank base rate sat at an incredibly low 0.1%. But the Bank of England’s cut to 5% reflects the improving UK economy with inflation at 2% and GDP growth of 0.7%.
“Although it was previously suggested that we’d see three interest rate cuts this year, the consensus now is for just one cut. Our 150+ lending customers are prepared for this, and are acting fast to update their rates to stay competitive and ensure they are equipped to manage an increasing demand for loans, alongside benefitting from lower funding costs. Many of our customers will likely be anticipating increased mortgage activity, as rate cuts mean consumer confidence is slowly restored in the house-buying market. Lenders will need to prepare to scale, compliantly, and to do this it’s vital that they have the correct processes and quality systems in place.”
Richard Beresford, Chief Executive of the National Federation of Builders (NFB), said:
“The NFB welcomes the Bank of England’s decision to cut the base rate. From housing and commercial premises to renewables and roads, more affordable lending will help more projects get off the ground.
However, the clear message from today’s announcement was to not expect continued cuts, as the Governor of the BoE is cautious about cutting rates too quickly or by too much. This places greater pressure on the Government to deliver strategic reforms across planning, procurement, and regulation, which are essential to relieving some of the financial burdens that currently stop projects being delivered.”
Pino Vallejo, CEO of Consulting at Davies, said: “The Bank of England’s decision to cut rates today will be welcomed by many. However, financial services (FS) businesses must remain agile and proactive as the monetary environment begins to relax. Indeed, while this move will inject some much-needed positivity and confidence, FS businesses cannot breathe a sigh of relief just yet.
“After all, the last two years have been extremely difficult. Consulting at Davies’ recent research found that the increase in the base rate between December 2021 and August 2023 significantly impacted the product or service offerings of 67% of FS firms. Despite the rate cut, the sector is still recovering from this strain, and rates will likely never return to the levels we became accustomed to during the 2010s. Therefore, it is vital that FS businesses remain competitive and continue to look for ways to support their customers more effectively.
“Nevertheless, leveraging the positivity that this rate cut could produce should be their priority, and provides a chance to invest in their organisation, improve efficiency, and strengthen their relationships with their clients. In doing so, they can ensure that they mitigate the difficulties of the last few years and position themselves to benefit from a more relaxed monetary environment in the months ahead.”
