The Bank of England’s (BoE) decision to cut interest rates could boost the property market by promoting a surge of first time buyers that are eager to take advantage of the lower rates.
In a bid to prevent a post-Brexit recession the BoE has delivered a package of measures including cutting interest rates. The official interest rate has reached a new record low of 0.25% and the central bank has suggested the rate could be cut further in the coming months if the UK’s economy falls following the vote to leave the EU.
The BoE’s measures aim to help sustain growth and employment despite the shocking result of the EU referendum. Other measures in the package include the purchase of up to £10 billion of UK corporate bonds, the expansion of the asset purchase scheme for UK government bonds of £60 billion and a new Term Funding Scheme to reinforce the interest rate cut. The Bank has urged financial organisations to pass on the interest rate cut to consumers.
So far HSBC and First Direct have passed on the cuts to their tracker mortgage customers and some other large banks are expected to follow suit shortly. First time buyers that are living in areas where getting a foot on the property ladder is particularly difficult, such as London and the South were house prices are typically higher, could benefit the most from the changes.
If lenders begin to pass on the interest rate cut it’s likely that those operating in the property market will begin to see an increased interest from both first time buyers and those looking to move to larger properties. Whether this will translate into increased sales is still unclear and high street mortgage lenders do not have to pass on the interest cuts.
Even if mortgage lenders do pass on the new lower interest rates, consumers could decide to hold off making a decision after BoE’s Mark Carney indicated that further cuts could be made this year.
The changes to the BoE interest rates come as a report from think tank Resolution Foundation reveals that home ownership in the UK has fallen to the lowest levels since 1986, falling to 63.8%. Back then the average first time buyer paid just under £30,000 for their home the figure has now reached £150,000, with those in the capital paying just under £330,000.