Why investors are benefiting from the interest cuts

The Bank of England has cut the base rate of interest for the second time this year. It is now at 4.25%, down from 4.5%. This is the lowest rate for two years and the clearest sign yet that the economic outlook is improving and the rate of inflation is falling back to a more sustainable level.

This is an important moment for the UK. At its peak, the base interest rate was a whole percent higher than the new rate. Now the Bank of England Governor, Andrew Bailey, is predicting that it will fall further with “gradual and careful” cuts over the rest of 2025 and into 2026.

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How far will the base rate of interest fall in 2025?

This is impossible to predict with certainty, but analysts are convinced that we will see further rate cuts this year. While an overall rate of 3.5% seems unlikely, it is common to see predictions of the base rate of interest falling to 3.75% within the year.

It all depends on the economy, but there are at least two members of the Bank’s Monetary Policy Committee who voted for deeper cuts, suggesting that they believe better economic conditions will arrive faster than we think.

Further cuts of any size will offer benefits for anyone investing in UK buy-to-let property.

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The cost of borrowing is falling

In the present, we can say that the cost of borrowing is falling in the UK. For investors, that means mortgages are getting cheaper, and your investment yields will rise if you buy with a mortgage.

The week of the interest rate cut, it was confirmed that all major lenders in the UK are now offering fixed mortgage rates of 4% or lower again for the first time in over two years. There is also a range of new mortgage products on the market that are making it easier to buy with a smaller deposit. That could potentially offer more opportunities for investors who want to use a leveraging strategy.  

The competition to provide the best rates and products should also be viewed as positive in a wider sense. There is always a feeling that interest rate cuts are ‘priced in’ by lenders ahead of time. However, the reality is that they will all fight to secure customers by offering the best rates. If one drops the rate a bit more than anticipated, the rest will follow, as we have seen.

For buyers of all types – including investors – that shows how interest rate cuts translate directly into a commercial advantage.

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Off-plan property for sale is even more valuable

The prospect of more cuts in the future also makes off-plan property for sale even more valuable for investors. When you buy off-plan, you pay the balance when the property is completed in the future.

That means that you can reserve a property at today’s price and pay for it with tomorrow’s mortgage rates. Those are predicted to go down, so your costs will go down and your yield will go up when you buy off-plan property.

The potential mortgage advantages of off-plan property are now so great that it’s even becoming a common option for first-time buyers. Completed property is normally the preference for people searching for their first home, but that may no longer be the case, thanks to falling interest rates.

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More buyers in the market mean house prices are likely to keep increasing

More buyers in the market, of any type, means that there will be more competition for properties. More competition and demand ensure that property values will keep going up. That’s another consequence of falling interest rates that will benefit all investors.

For investors, that means the best time to invest is now so that you can make the most of the incoming house price growth. Locations close to the waterfront or regeneration masterplans offer higher than average growth. Additionally, locations in the North of England are currently seeing the highest rates of house price growth, so cities like Manchester or Liverpool are likely to be great locations for investors who want to make the most of falling interest rates.

Other locations that could offer high returns for investors include seaside towns like Eastbourne, which has a shortage of properties and a range of rental markets for you to target, all of which have high and growing demand.

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Low interest rates mean high returns for investors

The bottom line is that when interest rates are cut, investors win on all sides. Lower borrowing costs, rising demand and higher property values mean you are spending less to earn more, and all at a time when buying and selling are getting quicker and easier.

Want to learn more about investing in UK property? Read our UK property market insights and contact our team of experts today to get expert, bespoke advice on how to maximise your income through property.