New industry data reveals that house prices surged to a record high just one day after the Bank of England reduced interest rates and hinted at more cuts on the horizon.
According to the Halifax House Price Index, the average property value increased by 0.7% in January to reach £299,138. On Thursday, the Bank of England lowered its interest rate from 4.75% to 4.5%, prompting traders to intensify their bets on additional cuts after two policymakers supported a more aggressive half-percentage point reduction.
Amanda Bryden, Head of Mortgages at Halifax, attributed part of the record-setting rise to first-time buyers rushing to complete transactions before stamp duty relief ends in April—a measure confirmed in Rachel Reeves’ Budget.
She commented, “Despite geopolitical uncertainties and declining consumer confidence, several key indicators remain robust for the housing market. The Bank of England has made its first base rate cut of the year, and we could see more. While the gap may narrow, household earnings are still expected to outpace inflation, alleviating some of the financial pressure from the current cost-of-living squeeze.”
House prices set to rise at a faster pace in the next two years.
House prices are expected to grow more strongly than anticipated over the next two years as the Bank of England rapidly cuts interest rates, according to several economists.
Capital Economics pointed to a 0.7% increase in January’s house prices, suggesting that the market remains resilient despite a weak economy and recent hikes in mortgage rates.
UK economist Ashley Webb added that the potential for lower mortgage rates—stemming from further interest rate cuts—indicates that house price growth will surpass consensus forecasts over the coming two years. Webb forecasts that the Bank Rate will decline from its current 4.5% to 3.5% by early 2026, rather than the 3.75% level expected by investors. This projection implies that mortgage rates could fall from 4.6% in December to around 4% in 2026.
Moreover, following the Bank of England’s recent communications, the risks now favor even steeper rate cuts. This scenario supports forecasts of above-consensus house price inflation—3.5% in Q4 2025 and 4.5% in Q4 2026. However, Webb cautioned that if the current economic weakness continues throughout the year, the rate of price increases might be more subdued.
