Why Interest Rate Cuts Should be Good News for the Housing Market

Article Synopsis

This article examines the effect that cuts in the Bank of England base rate have on the housing market, in the light of November’s decision to reduce it to 3.75%. There’s also a look at what 2026 is likely to hold for the housing market.

This article is a four-minute read.

Just before Christmas, the Bank of England cut their base rate from 4% to 3.75%, its lowest level for almost three years. Here, we look at why interest rate reductions are generally good news for the housing market and what experts think the property market is likely to look like in 2026 as a result.

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Why Rate Cuts Can Boost the Housing Market

Whenever the Bank of England cuts its base rate, then all the major lenders usually follow suit and cut their interest rates too. This means that it’s easier for borrowers to enter the housing market, increasing the number of mortgage applications and approvals.

Existing mortgage-holders should see their monthly repayments come down, with those on variable-rate deals usually feeling the benefit before people on fixed-rate mortgages. Both groups should have more disposable income, which is good news for the wider economy.

However, cutting interest rates puts upward pressure on house prices, which could be good news if you have a home for sale in Winchmore Hill, Crouch End, Cockfosters and many other parts of London which Anthony Pepe cover.

However, the effects aren’t uniform, and there can be plenty of regional variations. There are plenty of other factors at play as well, such as the current level of stamp duty and other government decisions.

When it comes to the rental market, lower interest rates encourage more buy-to-let investment (increasing supply and potentially stabilising rents) and making it easier for tenants to buy (potentially reducing rental demand).

Tenants who continue to rent from buy-to-let landlords should benefit too; their landlords should find costs going down (particularly if they are on a variable rate) and so have less reason to put the rent up.

House Prices in 2026

Following the cut in the base rate, property portal Rightmove is predicting that new seller asking prices across the UK will rise by an average of 2% by the end of 2026. House price rises will differ depending on the region, with lower-priced Scotland, Wales and northern England markets expected to see stronger growth.

The longer-term effects of the so-called ‘mansion tax’ aren’t immediately apparent, as the measure - announced in November’s Budget - isn’t due to be introduced until 2028.

It’s a positive year for first-time buyers, thanks to a good choice of available homes, improving affordability - people’s incomes are expected to grow faster than property prices over the next 12 months - and lower mortgage rates compared to 2025.

The Rental Market in 2026

Landlords will have to comply with the Renters’ Rights Act, which comes into force in May. This will strengthen the position of tenants by ending ‘no-fault’ evictions; renters will also have the right to request a pet in the property, and landlords must have ‘reasonable’ grounds for refusing any request.

For more information about how we can help landlords navigate their way through the Act, check out our previous blog post here.

Landlords will also have to keep abreast of new energy efficiency standards, with the minimum required EPC rating rising from E to (eventually) Band C. In the longer term, a 2% increase in income tax on rental income for landlords will come into effect from April 2027.

However, in 2026, property website Zoopla is still predicting modest rental growth of 2.6%, as there will still be strong demand for quality housing, both in London and across the UK.

Anthony Pepe’s Services

Whatever 2026 holds, Anthony Pepe is well placed to meet all your property needs, whether you have a home for sale in Winchmore Hill, need lettings agents in Crouch End, or want to contact estate agents in Highbury. We can help you sell or rent out your property, as well as helping you buy (or rent) your new dream home.

We pride ourselves on our excellent customer service and extensive network of offices - we have bases in Palmers Green, Harringay, Highbury, Crouch End, Enfield and Cockfosters - which means we can help potential clients in many parts of London.

Anthony Pepe also offer a number of landlord and property management services if you are looking to buy property as an investment.

Main sources: Rightmove and Zoopla

FAQS:

Q: What are the other key elements of the Renters’ Rights Act?

A: Apart from the end to no-fault evictions and the stipulation about pets, under the Act rents can only be increased once a year with proper notice. Landlords must advertise a fixed rental price and can't encourage offers above it. New rules will also prevent discrimination against tenants with children or those on benefits.

Q: How will the new ‘mansion tax’ work?

A: The new charge – officially called The High Value Council Tax Surcharge - will be collected on top of existing council tax, and it will increase depending on the price of a property, with four separate bands.

The lowest band covers properties valued between £2 million and £2.5m, while the highest charge of £7,500 will fall on homes valued at £5m or more. The majority of the properties affected will be in London and the south-east of England.

Q: When will the changes relating to Energy Performance Certificates and rented properties be introduced?

A: The UK government aims for all rented properties in England and Wales to reach a minimum EPC rating of C by 2030, with proposals suggesting new tenancies must comply by 2028, though these dates have seen shifts and are subject to ongoing policy.