House price growth and interest rate reduction

Author: Dave Mills

House price growth and interest rate reduction House price growth and interest rate reduction

UK house prices increased by 0.6% in August, resulting in a small rise in the annual rate of house price growth to 5.6%, up from 5.2% in July. In addition, the Bank of England’s Monetary Policy Committee’s (MPC) decision to lower UK interest rates from 0.5% to a new low of 0.25% will provide an immediate benefit to many mortgage borrowers, albeit a fairly modest one.

It is fair to say, that, in the wake of Brexit, there is still uncertainty in the market and therefore a lack of decisive movement in any direction. What happens next will be determined, to a large extent, by the health of the labour market and thus the confidence among prospective buyers. It is therefore encouraging that the unemployment rate remained at a ten-year low in the three months to June. It is also positive that retail sales increased at a good rate in July, up almost 6% compared with the previous year.

In addition to the interest rate cut, the MPC introduced a range of stimulus measures, which will also provide indirect support to the housing market - and not only by boosting the wider economy. For example, the MPC’s decision to purchase an additional £60 billion of UK government bonds will help to decrease long term interest rates, which will, in turn, help to lower the cost of fixed rate mortgages, which have already declined to new all-time lows.

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