The Bank of England has reduced interest rates for the first time since the onset of the Covid pandemic, a move hailed by one financial expert “starting a new chapter for the housing market”.

After maintaining borrowing costs at their highest since the 2008 financial crisis for a year, the Bank’s monetary policy committee (MPC) voted by a narrow margin to lower its base rate by a quarter of a percentage point to 5%.

Revealing internal disagreements among the central bank’s top officials regarding the timing of the cut, the MPC was divided five to four. Governor Andrew Bailey cast the deciding vote for the first reduction in borrowing costs since March 2020.

Bailey stated that inflationary pressures had “eased enough” to justify the first reduction in borrowing costs since the Bank halted its interest rate hikes a year ago – the longest period rates have been held steady after a hiking cycle since the early 2000s.

Despite the rate cut, the MPC cautioned: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further,” it said.

However, Anthony Codling, managing director for equity research at RBC Capital Markets, believes the rate cut will have a domino effect for property.

He said: “The first Bank Rate cut starts a new chapter for the housing market. 

“The worst is over. The MPC believes that inflationary pressures have loosened, mortgage rates are likely to fall, and housing market activity is likely to rise. “We believe that lenders will feel pressure to pass the Bank Rate cut onto borrowers and this could set the housing market up for a strong autumn selling season.”

More reaction:

‘More cuts feasible’

Ben Thompson, deputy CEO of Mortgage Advice Bureau, said: 

“This decision could’ve gone either way, but the Bank of England has rolled the dice and now finally has sufficient confidence to cut rates for the first time since 2020.

“For homeowners and those who’ve been looking to get on the property ladder, the past few years have been tough, but there are signs of it already changing. 

“Rates on mortgage deals have been falling, and it’d be feasible that more cuts will follow.” 

‘Catalyst for activity’

Ben Waugh, managing director, more2life, said: 

“As many industry experts predicted, the market has triumphed over recent challenges, prompting the Bank of England to cut its central rate today. 

“Naturally, this is great news for homebuyers and those refinancing residential mortgages, as borrowing costs become more affordable. 

“Today’s announcement will likely prove a catalyst for more activity in the coming weeks and months.” 

‘Sigh of relief’

Nathan Emerson, CEO of Propertymark, said:

“The rate cut is excellent news for the housing market and no doubt a huge sigh of relief for those who have felt the pain of higher interest rates for the last two years. 

“Summer is traditionally a busy time of the year for the housing market, and the base rate cut should hopefully provide a new wave of confidence and affordability for many.

“With a new government in power that is committed to delivering nearly two million new homes, Propertymark hopes the news is a real turning point for homeowners and those who aspire to buy.” 

‘Cut already priced in’

Simon Gammon, managing partner of Knight Frank Finance, said:

“The decision will have a limited impact on mortgage rates but it will be transformative for sentiment. There is a meaningful group of buyers that put off moving home in the wake of the mini-budget that can now push on with confidence. 

“The Bank of England has been particularly cautious, so by opting to cut the base rate it has sent a real statement that inflation is largely beaten.

“The lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates. That said, we’ve seen that the larger lenders are happy to take a hit to profits to gain market share, so we may well see another round of marginal cuts in the days ahead.”