There is a growing chorus that says, cut rates and the market will roar back to life like it was in 2020/21.
Tempting, but history, and the data, suggest otherwise.
On 7 August 2025 the Bank of England cut Bank Rate to 4.00%, the fifth reduction this year, down from the 5.25% peak in 2023. Lenders have nudged fixed rates lower, and for the first time since 2022 the average 2 year fix has dipped below the 5 year, reflecting bets on further cuts. Helpful for sentiment, yes, but it is not a silver bullet.
The real constraint is not just demand, it is mobility and supply.
Owner occupiers in the UK do not usually face capital gains tax (CGT) when selling their main home, thanks to Private Residence Relief, so CGT is not what is keeping would be movers in place. The bigger friction is Stamp Duty, which multiple studies have shown suppresses household moves, especially the short distance moves that free up family housing. In plain English, the tax makes moving dearer, so people stay put.
The end of temporary Stamp Duty reliefs for first time buyers in April has raised transaction costs again. Zoopla estimates that 83% of homeowners now pay Stamp Duty when they move, up from 49% before April. More homes are still coming to market, but higher purchase taxes are an extra headwind for price growth.
What happened last time we cut hard and turned the taps on?
During 2020 and 2021, Bank Rate went to 0.1%, mortgage pricing fell sharply, and the Stamp Duty holiday turbocharged demand. UK house prices rose massively between February 2020 and September 2022. Great if you already owned, not so great for affordability for everyone else. Many borrowers locked into sub 3% fixes, which reduced future mobility because trading up meant swapping a very cheap mortgage for a much pricier one.
Where we are now?
Stock is finally rebuilding.
Zoopla reports a record number of homes for sale this summer, buyer demand up 11% year on year, agreed sales up 8%, but house prices up only 1.3% over the past year. More choice for buyers is keeping a lid on asking price inflation.
Average new 5 year 75% LTV rates are in the 4.5% to 5% range.
Meanwhile, the refinancing story is still playing through. The Bank of England notes that around 41% of mortgage accounts, about 3.6 million loans, will refinance between June 2025 and mid-2028, with typical monthly payments for those rolling in the next two years projected to rise by about £107. Even with cuts, the lagged pass-thru keeps budgets tight. As rates ease, the share of high loan to income lending tends to rise, which can push prices faster than incomes, especially if supply does not improve.
Why lower rates alone do not fix affordability
Over the long run, lower ‘real’ interest rates (ie after inflation) have been the single biggest driver of higher UK house prices relative to incomes. Bank of England research finds that the multi-decade fall in risk-free ‘real’ rates can more than account for the rise in price to income ratios since the mid 80s. In other words, cheaper money raises asset prices. Lowering rates without tackling supply risks repeating the cycle.
The downside risks if we rely on rate cuts to “save” the market
- Prices can outrun incomes. Easier credit often lifts demand faster than supply can respond, which pushes prices up and widens the affordability gap.
- More leverage at the margin. As rates fall, high loan to income lending usually climbs. That helps some buyers today, but it raises vulnerability if incomes wobble.
- Mobility stays clogged. Stamp Duty continues to deter the downsizers and second-steppers who release the homes families need. Without reform, a lower Bank Rate will not unstick those moves.
- Transaction numbers do not equal affordability. HMRC data show volumes ebb and flow with policy and pricing. More transactions are welcome, but they are not proof that homes have become more affordable.
So what should we be asking for?
If we genuinely want a healthier, more affordable property market, the asks are different.
- Target mobility, not just money. Reform Stamp Duty (like David Powell ‘s Stamp Duty campaign) to reduce the penalty for moving, particularly for right sizers and growing families. That would free up under occupied stock (although I favour a either a sellers tax (not a buyers tax) or a property wealth tax myself through the council system.
- Increase the supply of homes where people want to live. Planning certainty and faster delivery will matter more to affordability than another quarter point off Bank Rate.
- Keep credit prudent and predictable. Stability beats sugar highs. The Bank’s latest cut to 4% helps confidence, but the path of cuts is uncertain, so buyers and sellers should plan on rates in the 4 to 5% range for now.
Cutting rates can support activity. It will not, on its own, make homes meaningfully more affordable.
If we want more people to move, we need to make moving easier, and we need more homes.
Lower rates are a tool, not a cure.