John Mitchell, Managing Director, Christie Finance 

It’s important to note that two members of the nine-person Monetary Policy Committee (MPC) voted in favour of a larger cut (by 0.5% to 4.25%) which gives a clear indication that expectations are now of cuts throughout 2025. One MPC member recently made a case for accelerated cuts in the year ahead, possibly by as much as 1.5% - potentially resulting in a Base of 3.25% - considerably more palatable for borrowers than the recent high of 5.25%.  The net effect on borrowing costs for every £100,000 borrowed would equate to a £2,000 annual saving. 

Difficult decisions are looming for the Bank of England, with rate cuts designed to strengthen the economy against an anticipated increase in inflation during the latter part of 2025. 

Implications for the commercial mortgage market 

The reduction in the base rate has significant ramifications for the commercial mortgage sector: 

• Lower borrowing costs: With the base rate decrease, commercial mortgage rates are expected to decline, making borrowing more affordable for businesses. This could encourage investment and expansion, as the cost of financing becomes more manageable. 
• Increased investment activity: Historically, reductions in the base rate have spurred increased activity in the commercial property market. Investors may be more inclined to pursue new projects or acquisitions, anticipating better returns due to lower financing costs. For instance, in the first half of 2024, cross-border investment into UK commercial property reached US$14 billion, with the country attracting more capital than the USA or any of its European peers.  

Considerations for borrowers and investors 

While the base rate cut presents opportunities, it's essential for borrowers and investors to remain vigilant: 

• Assessing loan terms: Businesses should carefully evaluate loan terms, considering both fixed and variable rates. Fixed rates offer stability, while variable rates may provide initial savings but carry the risk of future increases. 
• Evaluating sectors: Certain sectors may respond differently to economic changes and it’s important to be fully aware of external factors.  
• Monitoring economic indicators: It's crucial to stay informed about broader economic indicators, such as inflation rates and GDP growth, as these can influence the trajectory of interest rates and, consequently, the commercial mortgage landscape. 

The recent base rate cut by the Bank of England is a pivotal development for the commercial mortgage market. While it offers potential benefits like reduced borrowing costs and increased investment activity, businesses and investors must navigate this environment with careful consideration of their specific circumstances and the broader economic context. Staying informed and seeking expert advice will be key to making strategic decisions in this evolving market. 

Get in touch to find out more:

Christie Finance Enquiries
✉️E: enquiries@christiefinance.com
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