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Residential Market

Bank of England to consider major interest rate decision – what does this mean for the UK property market?

Thursday will see the monetary policy committee sit for their monthly meeting, deciding the trajectory of the UK’s macroeconomic strategy going into 2024


David Hannah, Group Chairman of Cornerstone Tax, calls for the MPC to consider cutting the base rate in a bid to signal market optimism ahead of the new year

Thursday will see the Bank of England’s Monetary Policy Committee (MPC) sit for the final time this year to vote on the trajectory of interest rates going into 2024. This meeting follows from three consecutive decisions by the MPC to hold interest rates at 5.25% starting in September, provoking experts and analysts to insist that interest rates had reached their apex following from fourteen consecutive hikes beginning in December 2021. David Hannah, Group Chairman of Cornerstone Tax, the UK’s leading property tax advisory, calls for the BoE to seriously consider cutting the base rate in a bid to signal market optimism ahead of the new year.

The decision will come in light of new data from the Office for National Statistics, revealing that the UK economy had shrank by 0.3% in October with economists citing contraction within the services, manufacturing and construction sectors as primary drivers for the waning macroeconomic landscape. Recent news of a 1.6% drop in the rate of inflation between September and October has also prompted analysts to speculate on a slight reduction to the base rate of interest as prices begin to show signs of stability and wages continue to outstrip inflation.

Within the UK’s property market, consecutive decisions to hold the interest rate at 5.25% also prompted signs of recovery. In recent weeks, top mortgage lenders have pursued competitive cuts to their products, with the average rate for a two-year fixed falling beneath 6% for the first time since June. Falling mortgage costs have contributed towards a small resurgence in house prices, with data from Halifax reporting a 0.5% rise in November – the second increase in a row. Nevertheless, mortgage rates remain a far-cry from where they once stood, with the average cost of a two-year fixed sitting at 2.34% in December 2022. Recent data from Rightmove has forecast a 1% fall in house prices next year, indicating that sky-high mortgage rates are still putting off many would-be first time buyers.

David Hannah, Group Chairman of Cornerstone Tax, comments:

“2023 has been a turbulent year in the UK property market, with successive interest rate increases and a generally hawkish approach to the control of inflation by the Bank of England. Emerging trends, such as a 17% decline in transactions in November indicates that the BoE may have overcompensated at the expense of the property market.

“That being said, there has been no crash as some have predicted, but rather, a softening in asking prices and a demonstrable development of a buyer’s market. This can however, be contrasted by some parts of the UK being property hotspots where prices have actually increased.

“November inflation figures and mortgage approvals should indicate an overall cooling off of the UK economy which, if we are to avoid a recession next year, must be acknowledged by the BoE and, in an effort to avoid a sudden crash of inflation, will increase pressure on the MPC to start reducing interest rates sooner rather than later.”

David Hannah, Group Chairman
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