Stock markets are on tenterhooks as the Bank of England discusses a potential reduction in UK base rates from 0.5% down to 0.25%. At this moment in time markets suggest there is an 80% chance of a reduction in July although if it does not happen this month then it is almost certain to happen in August. This would take UK base rates down to a historic low and give a very timely boost to the UK property market and the overall economy.
As many property owners have variable rate mortgages a reduction in base rates would be reflected in reduced variable rate mortgage rates. At a time when the UK economy is in limbo in light of the Brexit vote a reduction in monthly mortgage payments will be well received across the country. This would also likely prompt an array of new fixed rate mortgage deals although whether they would pass on the expected 0.25% base rate reduction in full remains to be seen. However, there is no doubt that a base rate reduction will in general inject a little of the missing feelgood factor into the UK property market.
Despite the doom and gloom the UK property market has held up fairly well in light of the vote to leave the European Union. While the number of property transactions may well have fallen in the last few weeks it is worth noting that there has been a significant reduction in the number of properties actually on the market for sale. The fall in the pound makes the UK more attractive to overseas investors and this is something which has already hit home in the corporate world with a number of high-profile US/UK mergers and acquisitions rumoured to be on the cards.
There is no doubt that any reduction in UK base rates will increase economic activity as in simple terms it will make it cheaper for both companies and individuals to borrow money. It would be wrong to suggest we are in the perfect economic environment but the doom and gloom merchants have certainly overdone any short to medium-term implications regarding the decision to leave the European Union. The Bank of England is also very much on the ball with regards to liquidity and ever-changing monetary policy which has in itself injected a significant amount of confidence into the UK economy. The fact that Mark Carney is being extremely open with regards to his thoughts and his future plans for the UK economy is assisting property investors in planning ahead and taking advantage of what many deem to be extremely attractive long-term investment opportunities in light of the Brexit vote.
A reduction in UK base rates from 0.5% down to 0.25% would be a historic move in the life and times of the UK. It will have an immediate impact upon those with variable-rate mortgages, will make borrowing even cheaper and should prompt a new wave of property investment to take advantage of the recent softening in prices.