Rates of interest

After the first cut in Bank Base Rate in August, the Monetary Policy Committee voted 8:1 to hold rates at 5.0% at its September meeting, with inflation remaining at 2.2% in July, slightly above the Bank of England’s target.

The official line was that “monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.” Put more simply, the Bank of England is still wary of cutting rates too soon or too fast.

However, with the Fed having effected a 0.5 percentage point rate cut, most experts are factoring a further rate cut by the year end. Correspondingly, the cost of mortgages has continued to fall. The Nationwide further reduced the cost of its fixed-rate mortgages last week to their lowest levels since before the ill-fated Truss-Kwarteng budget.

Market implications
Mainstream house price growth picked up by 3.2% in September according to the Nationwide, which is the fastest annual house price growth in two years. Yet, while mortgage approvals are improving, they remain below their pre-pandemic norm.

This largely reflects concerns over what the Chancellor may do on 30 October, given the heavily publicised assertion that there’s a £22bn black hole in public finances.

Those concerns have been most heavily felt at the top end of the market, where our prime house price indices show that values:

• fell by 0.7% in the third quarter of the year in prime central London
• rose marginally by 0.2% in the same period across the other prime housing markets in the capital
• fell by 0.5% in the prime markets beyond London (with the biggest adjustment in coastal second-home hotspots).

You can read more on what’s behind these figures in our press release and take a deeper dive into the fortunes of the prime central London market in our recent report.

Budget speculation
Ultimately, we can only wait to see what the budget holds. But, in the interim, it’s been interesting to see questions over the revenue raising potential of the flagship policy of abolishing non-dom tax status and the potential of legal challenges to adding VAT to school fees.

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