Interest rates held at 4.25%
The Bank of England (BoE) has kept interest rates steady at 4.25%, opting for a cautious pause amid ongoing economic uncertainty. The decision, a 6–3 majority vote by the Monetary Policy Committee, follows a quarter-point cut in May and reflects a measured approach to monetary policy as the UK economy navigates conflicting signals.
A cautious pause on Threadneedle Street
At 3.4% inflation is well above the BoE target of 2%, although this is significantly lower than the double-digit highs of 2022. Services inflation and wage growth remain stubborn, while global risks - including oil price volatility and geopolitical tensions - continue to weigh on the outlook.
April’s 0.3% contraction in GDP and signs of a cooling labour market have reinforced the Bank’s cautious stance. Bank of England Governor Andrew Bailey acknowledged that rates are on a "gradual downward path" but emphasised the unpredictability of global economic conditions.
The Bank’s decision has direct implications for the capital’s property sector - from first-time buyers to prime real estate investors…
Mortgage market
Although the base rate remains unchanged, mortgage rates for new buyers remain elevated, with most two-year fixed deals still priced above 5%. This continues to limit affordability, particularly for first-time buyers and those in outer boroughs.
Estate agents across London report that buyer demand remains subdued, while sellers are starting to adjust expectations. According to Rightmove, asking prices dipped 0.3% nationally in June, an unusual trend during the typically busy summer market - with London and the South East leading the decline.
Extra headwinds for Prime Central London
At the high-end London market has seen a 35% drop in year-on-year transactions, as changes to non-dom tax rules and a reduction in overseas interest take their toll. More properties are sitting unsold, and under-offer numbers have also declined.
Rental market stabilisation?
After years of sharp rent increases, London rents are starting to level off. Data from major rental platforms indicates that new let values have plateaued or even declined slightly in some inner-city zones. Landlords on variable-rate mortgages still face high costs, but the rate hold may bring short-term relief.
Eyes on August
Financial markets are now pricing in a possible rate cut in August, contingent on continued improvement in inflation figures. A further 25 basis point reduction would bring the base rate down to 4.00%, with some forecasts suggesting it could reach 3.75% by year-end. This would provide some welcome relief for borrowers and could re-energise activity in both the sales and lettings markets.
Final thoughts
The Bank of England’s latest move keeps the base rate at its current level while signalling that the door remains open to further easing. For now, London’s property market remains in a holding pattern, with affordability constraints and uncertain rate trajectories keeping activity subdued. If inflation continues to fall and rates are trimmed again later this year, a gradual rebound in confidence and housing demand may follow.
This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified professional before making property or mortgage decisions.
