Base rate cut will boost house prices by 2.5%

The Bank of England’s recent decision to lower interest rates to 5% has ignited optimism within the housing market, says property expert Lucian Cook.

The head of residential research at Savills says the move, marking the first rate reduction since March 2020, signals the central bank’s belief that inflation is finally under control.

He said: “This move should give buyers and sellers the confidence that the housing market will improve as we head into 2025.

“As a result of the cut, mortgage rates will be on course to return to more affordable levels, gradually improving the range of buyers in the market and their buying power.”

Surge in housing market activity

Data from TwentyCi supports this prediction, revealing a surge in housing market activity in July.

While June saw a temporary dip, July’s figures for activity surpassed pre-pandemic norms by 6%.

However, Mr Cook cautions that a substantial acceleration in house prices hinges on more pronounced interest rate reductions.

He said: “We are forecasting house price growth of +2.5% this year.

“However, steady cuts to the base rate should open greater capacity from 2025 onwards underpinning our forecast for total house price growth of +21.6% over the five years to the end of 2028.”

Increase in house prices

Mr Cook points to Nationwide’s July house price index, showing a 0.3% increase in house prices, as offering a glimmer of hope.

This modest growth marks a potential turning point, he says, as it could be the first instance of house price growth outpacing inflation since September 2022.

He adds that the housing market activity will continue increasing in the autumn – particularly if there are further cuts to the base rate in the coming months.