Would a cut to interest rates lift the 'flat' housing market?

As the Bank of England prepares to set interest rates on Thursday, Alastair Birtles, director at Scotts Hall & Birtles, outlines the implications the decision could have on the housing market. 

"According to investment bankers Goldman Sachs, the Bank of England will cut interest rates this week against a backdrop of fading inflationary pressures and sluggish economic growth. 

"A cut is far from certain - Goldmans predict a tight vote, with five members of the committee opting to cut to 3.75% against four to remain at 4%. If the cut does happen, on the face of it at least, it would bring some welcome relief to mortgage holders who’ve seen their monthly payments soar over the past few years. 

"We’re seeing a steady stream of property sales and purchases, but there’s no hiding from the fact that the market is flat. We think relatively high interest rates are only one factor keeping it that way. 

"Buyers remain nervous about the impact of interest rates on their mortgage payments, for sure. Any cut would ease that somewhat. But with the budget just around the corner, we’re also seeing some apprehension about the possibility of changes to Stamp Duty Land Tax and Capital Gains Tax on second properties - changes which might have a big impact for some. 

"We think buyers are holding off until they get clarity on these taxes and also possible changes to income tax and corporation tax which would more obviously affect affordability to either purchase or sell properties." 

Whatever happens over the next month, we’ll be on hand to advise clients how best to proceed given their personal circumstances.

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