A recent projection from Oxford Economics suggests a more optimistic outlook for UK interest rates, predicting a sharper fall than the current market consensus. According to the influential economic research firm, interest rates could decline to 2.5% by late 2027, a significant drop compared to the anticipated 3.75%.
This potential reduction in rates could create exciting opportunities for property investors, signaling a more favourable environment for borrowing and long-term investments.
While the market consensus expects rates to settle at 3.75% by 2025, Oxford Economics believes rates will continue to decrease, stabilising at around 2.5% by the end of 2027. This optimism stems from two key factors:
Andrew Goodwin, Chief UK Economist at Oxford Economics, explains:
“Before the pandemic, interest rates were very low due to ageing demographics and weak productivity growth. Once high inflation subsides, we expect these structural factors to reassert themselves.”
While emerging technologies like AI may provide a modest boost to productivity, Goodwin suggests it’s unlikely to return to the stronger growth rates seen before the 2008 financial crisis.
If interest rates indeed fall to 2.5%, it could have far-reaching implications for the property market:
However, Goodwin cautions that immediate relief for mortgage holders may take time:
“A lower Bank of England policy rate should eventually lead to lower mortgage rates, but it’s likely to be a couple of years before they drop below 4%.”
For property investors, interest rates falling to 2.5% by 2027 offer a silver lining in a challenging market. While current mortgage rates remain elevated, the long-term outlook underscores the resilience of the UK property market and the potential for strong returns on investment.
Stay ahead of the curve with Magnate Assets as we help you navigate the opportunities and challenges of the evolving property landscape. Contact us today to explore how these market dynamics could shape your investment strategy.