South: Industry comments on Bank of England interest rate cut
The interest rates cut by The Bank of England to 0.25% – the first reduction in seven years – has prompted much comment from the property sector.
Michael Green, head of office at JLL in Southampton, said: “The Bank’s interest rate cut was widely expected after July’s disappointment. Other measures, including £70 billion of new asset purchases, were more of a surprise, but still in line with previous hints by governor Carney. It will be some time before the economic impact of these measures can be judged, but the announcement will help reassure investors and occupiers at a time of intense uncertainty.”
Andy Pyle, UK head of real estate at KPMG, said: “The cut in interest rates to 0.25% by the Bank of England isn’t likely to have a major impact on the real estate market by itself, given the current low levels for base rates, and also that a number of lenders have pushed up margins by a similar amount since the referendum.
“Of more interest is the Bank’s view on the outlook for the economy contained in their Inflation Report – it is clear that there has been a weakening in the UK economy since the referendum result but how and when the economy bounces back is the key question. The Bank expects 2.5% less growth over the next two years, and ultimately a weaker economy will lead to lower occupational demand for property, which will have a knock on impact on values. However, I expect that there will be a reasonable degree of variation in the impact on different properties, depending on their location, tenant mix and the leases in place.
“There have been encouraging signs in the commercial real estate transactions market over the past two to three weeks, with a number of transactions concluded or in progress at values not far below where they were before the referendum, and we have seen some of the open ended property funds reopen for redemptions. While a number of overseas investors are being cautious, others are attracted by the depreciation in sterling enabling them to buy more cheaply, and the reduction in interest rates has already had an impact on the value of the pound.”
Miles Gibson, head of UK research, CBRE, said: “From a commercial property perspective, this base rate cut will not have any big impact on pricing, which is driven by long-term rates, although pricing might be boosted by a confidence effect from this cut. With sterling priced assets still looking attractive to overseas investors, whose cost of capital is not driven by UK debt markets, London and the UK most definitely remain a strong investment opportunity.”
Barratt Homes managing director Tim Hill said: “This is a positive move from the Bank of England and means more good news for homeowners, particularly those on tracker mortgages. The mortgage market is currently very competitive and we expect to see lenders launching even more exciting new products soon. With interest rates at a record low, now is a particularly good time to speak to a mortgage adviser to see what deals you can get.”
Paul Norman of CoStar commented: “The commercial property industry has been responding immediately to the much expected cut with general consensus that it will not significantly impact the sector in the near term, while taking more note of the increased downgrade by the Bank of England in its latest forecasting for UK growth in 2017 and 2018, combined with expectations that unemployment will rise.
Adam Challis, head of residential research at JLL, added: “This 25 pt base rate reduction will signal to mortgagors that cheap mortgage rates will be around for even longer. This will benefit many would-be home-movers and we are encouraged by the Term Funding Scheme that will ensure lenders pass on most of the rate reduction to consumers.
“More important for the housing market is a strong, stable economy and the rate cut will help. Post-referendum, we need greater certainty that will encourage housebuilders, protect jobs, and ultimately provide a range of housing that people can afford.”
