As we look to the new year there is one big question on house buyers’ minds – will interest rates continue to fall in 2025? Crystalballing the future is a tough job but it is at least one made a little easier by the Bank of England governor Andrew Bailey’s comments only a few weeks ago. He told the Financial Times at the beginning of December that the base rate could be cut four times in 2025 making 3.75% a seemingly realistic target for this time next year.
2024 saw two interest rate cuts but they were a long time coming for those eager for the kickstart they knew it would deliver to the housing market. By March 2024, Bailey had confirmed that interest rate cuts were “on the way” even though the Monetary Policy Committee had just held the base rate at its 16-year high of 5.25% for the fifth meeting in a row.
The first cut of 2024
It took until 1 August before the first cut in the base rate would finally materialise. This was despite the fact that in both May and June, twelve-month CPI inflation had hit the MPC’s 2% target. The decision to cut the base rate was also a close call, with a 5-4 majority showing how slim the decision was.
But it proved the stimulus the market needed. Buying interest had already picked up and lenders had already begun to reduce rates in anticipation. By early autumn there were reports of a flurry of activity in the market.
The second cut
But Bailey wasn’t going to rush things. It took until November, a week after Labour’s first budget since taking the reins in July, for the second base rate cut of 2024 to take place, down a further 0.25% points to 4.75%. This time the cut was with the approval of a larger majority, with a vote of 8 to 1.
It had been hoped that a third cut could be squeezed in by the MPC at the last meeting of 2024 in December, but this didn’t happen. At the time of the November announcement, Bailey said that while rates would “continue to fall gradually” they would not be cut “too quickly or by too much”. A bounce in inflation to 2.3% for the twelve months to September and 2.6% for the twelve months to October showed why the MPC is taking things slowly.
In November, economist Paul Dales, from Capital Economics, was reported as saying that he expected rates to fall slower to 3.5% in early 2026 rather than to 3%. Interest rates should continue to fall despite the latest inflation rise but it will likely be a more measured approach. Coupled with Bailey’s suggestion of four base rate cuts in 2025 it seems that a base rate of 3.75% by this time next year does seem to be the most likely scenario.
Proctors is an independent network of individual estate agent businesses with branches in Beckenham, Bromley, Park Langley, Petts Wood, Shirley and West Wickham. We’ve been buying, selling and letting in these areas since 1946. Get in touch to find out how we can help you with your property requirements.