Britain’s central bank cut interest rates to a historic low Thursday in a bid to boost growth in the wake of the Brexit vote—making home purchases even cheaper for wealthy foreign buyers.
The Bank of England trimmed rates from 0.5%, where they have been held since the depths of the global financial crisis, to a record low of 0.25%. The British pound fell sharply against the dollar, to $1.3110, following the announcement and was on track for its biggest one day drop against the greenback in a month.
For luxury buyers, experts believe the move could not only make taking out a mortgage slightly less expensive, but should also weaken the pound against other currencies, giving dollar-backed foreign buyers even further gains.
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“For international buyers, the effect on sterling makes it even cheaper to buy here. The U.K. is still a stable democracy with a solid legal system, stable politics and huge amounts of culture and history. In dollar terms, a 10% cut in the price of a luxury property is a big discount to compensate for any risk you might see,” said Fionnuala Earley, research director at Hamptons, a U.K.-based real estate consultancy.
However, she cautioned that the move may not necessarily spark a buying spree, arguing that a rate cut could have two competing effects. On the one hand, it could lead would-be buyers to wait if they think the outlook for the U.K. is gloomy and prices will fall sharply. On the other hand, they may decide that the move will support the economy and make prices more stable.
“There’s some middle ground here. We’ve already seen price falls in prime markets, and there will continue to be negotiation while there is uncertainty, but there is still that limited supply of real luxury property in the very best districts, and that will be a support,” Ms. Earley said.
At the same time, many international investors will still also have to weigh the benefits against higher stamp duty rates, which have dampened demand, especially for London trophy homes, over the last two years.
The British government first slapped higher taxes on more expensive homes in December 2014, before introducing a 3% surcharge for buyers of second homes and rental properties this past April.
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Trevor Abrahmsohn, managing director of Glentree International, a London-based brokerage, said: “Philip Hammond (the British finance minister) should look again at the ridiculous levels of stamp duty which has had such a devastating effect on the liquidity of the markets.”
Mark Pollack, director of Aston Chase, added: “I don't see a negligible reduction in interest rates making a significant difference as in reality, a review of the current stamp duty levels or a postponement of the onerous legislation around tax relief on buy-to-lets, would undoubtedly have a greater positive impact on the London residential property market—which, ironically, has performed far better than originally feared post-Brexit.”