Increase observed in house prices prior to crucial Bank of England interest rate determination
Bank of England Expected to Cut Interest Rates Amid Economic Uncertainty
The Bank of England (BoE) is set to lower interest rates, with markets and analysts predicting a reduction as early as today [6]. The current BoE interest rate stands at 4%, following a recent cut from 4.25% on August 7, 2025 [5].
The BoE Governor, Andrew Bailey, has hinted at larger cuts if the jobs market shows signs of a significant slowdown. The Monetary Policy Committee voted narrowly (5-4) for the August cut, indicating that future reductions will be cautious and gradual to maintain low and stable inflation [1][4][5].
Impact on House Prices, Particularly in London
Lower interest rates typically reduce mortgage borrowing costs, making monthly payments more affordable and potentially increasing demand for properties, especially in high-demand markets like London. However, the overall impact depends on broader economic factors [1][3].
London’s property market tends to be more sensitive to interest-rate changes due to its high-value transactions and concentration of mortgage holders on variable or tracker deals. Rate cuts may stimulate activity, but sharp increases are unlikely if economic growth remains slow or uncertain [1].
Recent changes in Stamp Duty have had an impact on London's housing market. Nathan Emerson, CEO of Propertymark, has described it as a "glimmer of good news for consumers" [7]. However, many properties in London, particularly inner London, are losing value [8]. The removal of stamp duty relief for first-time buyers from April has led to a decline in demand for properties in London [9].
A survey from Fairview Homes reveals that only 15% of first-time buyers in London can afford the additional £6,250 in stamp duty due to the median first-time house purchase tipping over the stamp duty threshold [4]. The number of homes for sale in London is 16-19% higher than a year ago, according to Rightmove [10].
Despite these challenges, the housing market in London and the UK as a whole remains a topic of interest for buyers and sellers, who are closely watching the BoE for updates on interest rates [3]. Economist Mark Harris believes that another interest rate cut this month could boost confidence and activity in the housing market [2].
Sources:
- BBC News
- The Guardian
- The Telegraph
- Fairview Homes
- City AM
- Sky News
- Propertymark
- Evening Standard
- The Times
- Rightmove
- With lower interest rates predicted by the Bank of England, potential investors may find real-estate financing more appealing, as reduced borrowing costs could make property investment in London more affordable.
- As the BoE considers further interest rate cuts to stimulate economic growth, the financial sector, including businesses and investors, could see changes in property tax liabilities, affecting their overall investment strategies.
- Despite the hike in stamp duty for first-time buyers in London, the lowering of interest rates by the Bank of England could encourage other buyers to enter the real-estate market, potentially stabilizing the housing market in the region.
