Pressure on Bank of England reaches boiling point as inflation hits 2% | But what does it mean for the property market?

David Hannah, Group Chairman of Cornerstone Tax, discusses what the latest inflation news means for the property market.

The data from the Office of National Statistics (ONS) reveals that inflation has finally fallen to the Bank of England’s set target of 2%. This follows almost a full year of record-high interest rates, with the BoE having held the base rate at 5.25% since August 2023. With inflation now at a three-year low, pressure is mounting on the BoE to pursue cuts to interest rates as the UK economy maintains its course for recovery. David Hannah, Chairman of the UK’s leading property tax experts, Cornerstone Tax, asserts that for the next government to revitalise the housing market, pressure must be applied to the BoE ahead of their next meeting, in a bid to encourage prospective first-time buyers to take their first step on the housing ladder.

Since the BoE’s initial decision to pause interest rate hikes, the UK’s mortgage market initially showed considerable signs of recovery, however, the latest research from Rightmove has revealed that the average British house price reached a record high of £375,131 in May, reflecting a 0.8% monthly increase. This surge, equivalent to a £2,807 rise, is driven by pent-up demand from buyers who had paused their plans last year sustained by high mortgage rates. These findings were released as tenants renewing an existing contract in Britain typically saw their rent rise by an average of 8.3% over the last 12 months, outpacing rental growth on newly let properties. This news continues to destroy the morale of Generation Stuck – those Brits currently unable to buy a home and leave the rental market.

David Hannah, therefore, highlights that the announcement from the ONS must be the catalyst for the BoE’s Monetary Policy Committee to prioritise first-time buyers by further reducing interest rates to 4.75%. This move would allow for the UK’s housing market to recover faster whilst also delivering far greater opportunities for those looking to escape an overheated rental market.

Chairman of Cornerstone Tax, David Hannah, comments:

“Following two-and-half years defined by consecutive hikes to the base rate, resulting in the highest interest rate in over a decade, today’s news should encourage the next government to increase the pressure on the Bank of England to finally consider a long overdue cut. For months we’ve been told that the Monetary Policy Committee have their “hands tied” as inflation gradually neared its two per cent target. This has been to the detriment of the nation’s once-dynamic housing market, unfortunately, first-time buyers have had to face discouraging mortgage rates whilst a record number of landlords have also had to sell-up their properties, forcing up rental costs for Generation Stuck.
 
“Economies have momentum, with the rate of inflation continuing its downward trajectory towards the BoE’s threshold of 2% – the MPC must start thinking about the optimum time to cut rates. I’d urge the MPC to seriously consider cutting the interest rate in their next meeting, even a reduction by a quarter percentage point would signal optimism within the UK economy, with a target base rate of 3-3.5% being the overall goal if the BoE want to truly prioritise prospective buyers in the new year.”