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.”