Bank of England Rate Cut Offers a ‘Boost to Sentiment’ in the Luxury Sector

The Bank of England’s first interest rate cut in four years on Thursday prompted a sigh of relief from home buyers and sellers nationwide that will boost confidence in the luxury home market, too.

The central bank voted to cut the benchmark lending rate from 5.25% to 5% in a move that is expected to have a more pronounced impact on the middle and lower ends of the property market—who more frequently finance their home purchases—as opposed to the more discretionary top end.

However, it may prove to be an auspicious sign for foreign investors, according to Simon Barry, head of new developments at Harrods Estates. “Today’s rate cut, hopefully the first of several, sends a resounding message to international investors: Now is the opportune moment to move back into U.K. property,” Barry said.

“Investors who have enjoyed solid returns in cash over the past two years may now be tempted to shift their wealth into property before the market picks up, particularly in prime central London, where some areas remain undervalued compared to their 2014 peaks,” he added.

Though high-end buyers tend to be less affected by interest rate fluctuations, they aren’t completely decoupled from the shifts. “Even those who can afford to purchase properties outright at the top end of the market often opt for financing, as it can be a savvy investment strategy,” according to Barry.

Overall, he said, “this announcement will be warmly welcomed across the property sector.”

Following 14 consecutive rises, the base rate had been held at 5.25% since August 2023.

If nothing else, the cut will be a “boost to sentiment to the prime property markets going forward,” said Mark Parkinson, managing director of London-based real estate consultant Middleton Advisors.

“It reflects a positive direction of travel. Less positive was this morning’s news of the government confirming the end of the non-dom status,” Parkinson said, referring to the scrapping of a tax law that has benefited the wealthy for centuries . “But both of these developments today will provide buyers and sellers more certainty of what is in store.”

In July, asking prices across the U.K. dropped 0.4% monthly to £373,493, “a bigger July drop than usual,” according to a report from online property portal Rightmove

“Capacity for house price growth will remain limited until there is a more significant reduction in the cost of debt,” said Emily Williams, director of research at estate agency Savills. “However, this is a clear signal to the market that the Bank feels it has turned a corner in the battle against inflation, and it should give most buyers and sellers confidence that the market will improve as we head into 2025.”

The spring property market is shaping up as the most active in recent memory, according to property experts Two Red Shoes.

Mortgage brokers Rebecca Jarrett-Dalton and Brett Sutton point to a potent mix of pent-up buyer demand, robust seller confidence and the First Home Guarantee Scheme as catalysts for a sustained run.

“We’re seeing an unprecedented level of activity, with high auction numbers already a clear indicator of the market’s trajectory,” said Sutton. “Last week, Sydney saw its second-highest number of auctions for the year. This kind of volume, even before the new First Home Guarantee Scheme (FHGS) changes take effect, signals a powerful market run.”

Rebecca Jarrett-Dalton added a note of caution. “While inquiries are at an all-time high, the big question is whether we will have enough stock to meet this demand. The market is incredibly hot, and this could lead to a highly competitive environment for buyers, with many homes selling for hundreds of thousands above their reserve.”

“With listings not keeping pace with buyer demand, buyers are needing to compromise faster and bid harder.”

Two Red Shoes identifies several spring trends. The First Home Guarantee Scheme is expected to unlock a wave of first-time buyers by enabling eligible purchasers to enter with deposits as low as 5 per cent. The firm notes this supports entry and reduces rent leakage, but it is a demand-side fix that risks pushing prices higher around the relevant caps.

Buyer behaviour is shifting toward flexibility. With competition intense, purchasers are prioritising what they can afford over ideal suburb or land size. Two Red Shoes expects the common first-home target price to rise to between $1 and $1.2 million over the next six months.

Affordable corridors are drawing attention. The team highlights Hawkesbury, Claremont Meadows and growth areas such as Austral, with Glenbrook in the Lower Blue Mountains posting standout results. Preliminary Sydney auction clearance rates are holding above 70 per cent despite increased listings, underscoring the depth of demand.

The heat is not without friction. Reports of gazumping have risen, including instances where contract statements were withheld while agents continued to receive offers, reflecting the pressure on buyers in fast-moving campaigns.

Rates are steady, yet some banks are quietly trimming variable and fixed products. Many borrowers are maintaining higher repayments to accelerate principal reduction. “We’re also seeing a strong trend in rent-vesting, where owner-occupiers are investing in a property with the eventual goal of moving into it,” said Jarrett-Dalton.

“This is a smart strategy for safeguarding one’s future in this competitive market, where all signs point to an exceptionally busy and action-packed season.”

Two Red Shoes expects momentum to carry through the holiday period and into the new year, with competition remaining elevated while stock lags demand.

Bank of England Rate Cut Offers a ‘Boost to Sentiment’ in the Luxury Sector

The first cut in four years will still fuel confidence among less rate-sensitive consumers

Buyer demand, seller confidence and the First Home Guarantee Scheme are setting up a frantic spring, with activity likely to run through Christmas.