The Bank of England has lowered interest rates to 4.25% in a move that real estate experts say will unlock property decision making.
At a meeting today (7 May 2025), members of the Monetary Policy Committee voted by a majority of 5-4 to reduce interest rates by 0.25 percentage points, having held them at 4.5% in March, read here.
Of the four members who opted against the 0.25% cut, two preferred to reduce Bank Rate by 0.5 percentage points to 4%, while the others wanted to maintain interest rates at 4.5%.
The MPC pointed towards "continued progress in disinflation" as a key factor behind its decision to cut rates, which had been tipped by economic experts. The committee also said that the dampening of previous "external shocks" influenced its thinking.
Although it acknowledged that uncertainty created by global trade policies – namely US tariffs – would affect global growth, the committee argued that the impact would "likely be smaller" on UK growth and inflation.
"As the past few weeks demonstrate, the global economic environment remains an uncertain one," said Andrew Bailey, the governor of the Bank of England, in a conference on Thursday.
"Interest rates are not on autopilot – they cannot be. Instead, the MPC must continue to respond carefully to the evolving economic circumstances and the outlook for inflation in the UK.
"Whatever happens, the MPC will continue to set Bank Rate to ensure that inflation returns sustainably to the 2% target in the medium term."
Deal activity recovery
Daniel Austin, chief executive and co-founder at property finance specialist Ask Partners, suggested in a statement that today's interest rate cut would help to increase confidence around real estate investment deals.
He said: "The Bank of England’s modest rate cut underscores the delicate balancing act it faces amid global uncertainty, Trump-era trade tensions and the UK’s impending tax reforms.
"For investors and developers, the trajectory of interest rates remains crucial. Even today’s modest cut will significantly impact those managing large debt loads. Resilient demand in high-growth segments like coliving and build-to-rent continues to attract capital despite ongoing supply constraints.
"With the UK facing potential political and fiscal change, real estate players must stay agile. Should further rate cuts materialise, we could see a stronger recovery in both deal activity and investment flows. Until then, uncertainty persists, and smart, forward-looking financial planning remains key to navigating what’s next."
Rebecca Harper, head of investment at Rapleys, also said the cut was a step in the right direction towards increased investment activity echoed thoughts of increased investment confidence: "Today's interest rate cut was widely predicted and will help confidence when it comes to real estate investment.
"There are opportunities out there with many investors chasing added value opportunities at present and this should support an increase in decision making when it comes to deals."
Gareth Taylor, head of debt at Aprirose, also said in a statement: "The move to cut interest rates this week was widely predicted by the market and, largely, priced in. However, the certainty in doing so will inspire confidence and hopefully drive activity that may have been on hold in both real estate and lending and investment markets.
"There are property investment opportunities for international investors in particular who still view London (and the wider UK) as a safe haven for their capital and who needed an extra push to acquire."
It is the second time this year that the MPC has decided to lower interest rates in the UK and the fourth time since Bank Rate peaked at 5.25% in August 2023. Experts predict that the Bank will continue to gradually reduce interest rates.
UK Chancellor Rachel Reeves told BBC News that there was "more to do" to help boost the economy. She told the broadcaster: "In a changing world, we’re bringing stability to the public finances and going further and faster to grow the economy, putting more money in the pockets of working people through our plan for change."
Shadow Chancellor Mel Stride argued higher interest rates continued to hurt UK families and business. He said in a statement: "Labour's economic mismanagement is keeping interest rates higher for longer, pushing up bills and subjecting working people to tax hikes, leaving families £3,500 worse off."
Unlocking investment
Dominique Moerenhoet, chief executive of the European Public Real Estate Association, said in a statement that the Bank's decision to cut rates would be welcomed by Europe’s listed real estate sector after the European Central Bank reduced its deposit facility rate to 2.25%.
He added: "This is welcome news for Europe’s listed real estate sector as companies are scheduled to refinance 43% of loans maturing in 2025 through to the end of 2027. This will lower interest payments and free up more cashflow for investment and for shareholder distributions.
"The listed sector is well=placed in spite of the likely headwinds to the economy from higher tariffs on exports, which may affect them indirectly through tenant demand. Most economists and investors expect inflation to slow, allowing Europe’s central banks to continue lowering interest rates this year to achieve a neutral level in 2027 to 2028, when 32% of debt issued by listed real estate companies matures.
"EPRA’s research shows that the listed real estate sector outperforms most other equity sectors in Europe during an interest rate easing cycle, as well as direct real estate investments.
"Europe’s listed real estate sector is in good shape. Companies successfully weathered the spike in interest rates that came in 2022 by reducing leverage, underscoring the importance of management teams’ expertise in driving operational performance. For these reasons Europe’s listed property sector has been outperforming other equity sector since US President Trump first announced higher trade tariffs."
News of falling interest rates in the UK comes as the US Federal Reserve held rates on Wednesday in the 4.25%-4.5% range, read here, despite encouragement from President Trump to cut them.
The Bank of England's decision to cut rates also followed reports that a trade deal between the UK and US governments had been agreed, which would be the first trade agreement made by the US government after it imposed tariffs.
Bailey welcomed the reports of a trade agreement between the two governments saying it would help to reduce uncertainty. He added: "The UK is a very open economy, so the UK is also affect by the way in which trade policy and tariffs affect other economics.
"I hope the UK agreement, if it is indeed announced this afternoon, will be the first of many. This will be good news all round including for the UK economy."