Lower Interest Rates means Higher Property Transactions?

Lower Interest Rates means Higher Property Transactions?

This morning, I was invited to give a talk to one whole big group of seasoned property investors.

So, I did not talk about how to invest because maybe most of them may be even more experienced than me. I spoke about all the macro happenings which could still affect property investments. The most amazing thing is that I spoke for 100 minutes in Mandarin! Haha. I touched about interest rate and now this came up. Bank of England has decided to cut interest rate. Why did they decided to cut rates?

Why are rates being cut?

Well, cutting rates usually indicate a slowing down of economic activities or even a potential slowdown in the near future. Thus, instead of cutting 50 basis points later, the central bank may prefer to lengthen this whole process and just cut 25 basis points earlier and another 25 basis points later. Who knows, maybe this 25 basis point could have the right effects on the economy and no further rate cuts are needed?

Article in bbc.com. The Bank of England cut interest rates from 5% to 4.75% in November – the second reduction in 2024.

Interest rates affect the mortgage, credit card and savings rates for millions of people across the UK.

The first drop in rates for more than four years came in August, but borrowing costs remain high for many. Read here for the full article: Article in bbc.com.

Will this be pushing up the property transactions then?

Actually, 25 basis point is not a lot. So, that effect may be a soft one. However, this lower rate may give people the confidence to enter and buy because their expectation is that the rates could potentially be lower. So, they do not need to worry that after they buy the property, the interest rate kept going up and pushing up their monthly mortgage payments. The total property transactions for the UK property market is as follows: (look at the trend)

From the yearly trend, it does seem that perhaps a rate cut is needed…

What’s happening here in Malaysia then?

Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate stable at 3 percent. This is what it is saying. “Bank Negara Malaysia (BNM) has maintained the Overnight Policy Rate (OPR) at 3% as the latest domestic indicators point towards sustained economic activity in the second quarter (Q2) of 2024, driven by resilient domestic expenditure and better export performance.” Info Source: thesun.my. Briefly, BNM thinks the current rates are accommodating enough. Plus the economy is healthy enough without this need for now.

Will property transactions be rising then?

Briefly, the trend is positive. Both the transactions and also the prices of these transactions are up. It meant the buyers could afford to pay more.

Happy understanding why rates move up or down and the potential effects it could have on the property market.

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