Article Synopsis
This article is a four-minute read
This article looks at what usually happens to the property market if there is a cut in the Bank of England base rate.
It covers the effects on both the house-buying market and the commercial rented sector. While the effects are generally positive, there are some potential longer-term side-effects which buyers or investors need to consider.
There’s also a rundown of the comprehensive property-related services which Maunder Taylor can provide.
The Bank of England base rate was cut again this month, by a quarter of a percentage point, from 4.25% to 4%. This rate is seen as one of the bellwethers of the UK property market. But why?
Maunder Taylor – Estate Agents in Whetstone
Maunder Taylor has plenty of expertise in all aspects of the property market. As traditional estate agents in Whetstone we can help if you are buying, selling or renting your home, but we offer a lot more besides. We can also help with commercial premises, and associated property services such as insurance and valuations, and any legal disputes which might arise. Here we look at how the market generally reacts to a rate cut, and some consequences which aren’t always immediately apparent.
What A Base Rate Cut Usually Means for the Property Market
Generally, if the Bank of England base rate is cut, then all the major lenders will follow suit and cut their interest rates too. This means that it’s easier for borrowers to enter the housing market, increasing the number of applications and approvals. Existing mortgage-holders should see their monthly repayments come down, with those on variable-rate deals usually feeling the benefit before people on fixed-rate mortgages.
This, in turn, usually puts upward pressure on house prices. However, the effects aren’t uniform, and there can be plenty of regional variations. There are plenty of other factors at play as well, such as the amount of stamp duty, a shortage of housing and the complexity of the whole market (particularly when it comes to property chains) — can all affect prices.
Lower base rates also affect the interest paid on savings accounts, which can mean would-be buyers take longer to get sufficient funds for a deposit together.
and For Rental Properties in Particular
Buy-to-let landlords benefit from lower mortgage rates in the same way as regular buyers. Lower borrowing costs also make it more attractive for new investors to enter the buy-to-let market and for existing landlords to expand their portfolios, attracted by the prospect of increased rental yield. Again, this can lead to a rise in buy-to-let properties, potentially putting upward pressure on house prices in the long run.
However, tenants could benefit as well, as their landlords shouldn’t need to increase their rents (or at least, not by as much) to cover their own costs. This could stabilise rental prices, especially if the supply of rental properties increases due to more landlords entering the market.
Again, the effects on rental prices and landlord activity will vary depending on local economic conditions, the supply and demand for housing in that area, and other factors like local job growth and infrastructure projects.
House Prices and Rents in 2025
The 2025 figures seem to bear these overall trends out. While average asking rents outside London hit a record £1,349 per month in the early part of this year, this represents only a 0.6% increase from the previous quarter — the smallest rise since 2020. In London, rents edged up by just £3 to £2,698 per month, another record high but a sign of cooling growth compared to previous years.
As of May 2025, average house prices in London saw a modest annual increase of around 2.2% compared to the previous year, bringing the average price to around £566,000. The improved affordability of homes, and the positive market sentiment generally, have both been key factors in this increase (which particularly applies to detached and semi-detached houses).
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FAQS
Why aren’t the effects of a rate cut immediately apparent?
While the base rate sets the benchmark, the final mortgage rates are determined by lender competition and other market factors. Some lenders may have already factored in a predicted rate cut, so their rates might not fall as dramatically as a new rate cut might suggest.
The Bank of England’s decision to cut rates is often a response to broader economic signals, such as slowing growth or low inflation. The state of the economy, including wage growth and consumer confidence, will also play a crucial role in how the property market reacts.
Is it a good idea to invest in property after a rate cut?
In the short term, yes, as borrowing is more affordable, for would-be homebuyers and landlords. However, in the longer term, house prices may increase, and rental yields may hit a ceiling in a crowded market.
And while rates may be falling now, they won’t stay that way forever. If you secure a mortgage with a short-term fixed rate and rates rise significantly in the future, you could face a “payment shock” when you remortgage. This could severely impact the profitability of your investment.
What other broader factors should you consider before investing, apart from the base rate?
The political and tax landscape for property investors in the UK is constantly evolving. Changes to stamp duty, capital gains tax, and mortgage interest relief can significantly impact your profitability. These factors should be considered in addition to interest rates.