2024 saw two cuts to the Bank of England base rate, taking it down to 4.75% and bringing hope that the property market in Scotland will see a boost as a result as mortgage rates fall and affordability improves.
The timing of further cuts is not yet certain which makes predicting the market a challenge. In November, just after the rate was cut for the second time in 2024, the bank’s governor Andrew Bailey was reported as saying that he predicted four further cuts in 2025. At the December meeting the Monetary Policy Committee voted to keep the base rate at 4.75% for the second month in a row, although three of the nine members voted for a further 0.25 percentage cut to 4.5%.
The move followed the day after it was announced that inflation had risen to 2.6% for the twelve months to November thanks to stronger inflation in core goods and food. Headline CPI inflation is expected to continue to rise slightly in the near term according to the Bank of England.
With the second above target inflation rate in as many months, the Monetary Policy Committee will be conscious of not doing anything that could cause inflation to rise further from its 2% target and will therefore act cautiously with the timing of further interest rate cuts with the next meeting due in early February. After witnessing a November inflation rate of 2.6%, the MPC will be wanting to keep inflation from its upward trend.
Impact on house prices
In November chartered surveyors Walker Fraser Steele’s house price index for Scotland showed average house prices grew by £400, up 0.2% in September from the previous month. According to the index fourteen local authority areas reported rising prices in September and 18 saw price falls. Prices hit new highs in four local authorities, including East Lothian and East Renfrewshire.
According to Rightmove’s latest house price index, published in December, average Scottish house prices fell by 3.9% on the previous month to £185,573 although the figure is up 2.7% year on year.
Longer-term positivity is returning thanks to the existing base rate cuts. In the latest Royal Institution of Chartered Surveyors Residential Surveyors (RICS) Residential Market Survey, the results showed that expectations for home sales in Scotland have reached their highest level in more than three years with a net balance of 50% of Scottish respondents expecting the volume of transactions to increase in the three months ahead.
What it means for the future
The last two month’s rises in inflation is concerning since it throws doubt as to the timing of further interest rate cuts. But the two existing base rate cuts, as well as the promise of more to come, will lead to the prospect of mortgage rates falling further. Improved affordability, coupled with the increase in consumer confidence will lead to more buyers and sellers coming to market and greater levels of sales activity expected in Scotland as a result.