The property market is expected to “respond quickly” to the Bank of England’s decision to cut interest rates to 3.75%, as industry figures point to improving confidence and renewed demand heading into the New Year.

While much of the market has remained cautious in recent months, the rate cut is seen as a signal that borrowing costs are beginning to ease.

The pre-Christmas boost could potentially unlock activity that stalled in the run-up to the Autumn Budget and provide new momentum across residential and commercial property.

Paresh Raja, chief executive of Market Financial Solutions, said: “This is what so many were hoping for – the Bank of England has sent a clear signal that it wants to reduce the cost of borrowing, and we expect the property market to respond quickly.”

He added that once into the new year, they expect to “see greater confidence and demand among property investors and homebuyers”.

Andrew Lloyd, managing director at Search Acumen, said: “This decision will be welcomed across the property market as a further step towards easing pressure on borrowers and restoring confidence after a prolonged period of caution.”

For buyers, investors and lenders, even modest reductions in borrowing costs can help unlock decisions that have been delayed over the past year, Lloyd added.

However, Gareth Taylor, head of debt capital markets at Aprirose, suggested the “outlook remains complex” with current forward projections suggesting rates could begin rising again by mid-2027.

This dynamic keeps the five-year GBP swap rate hovering around 3.7%, limiting the immediate impact of the cut, Taylor said.

He added: “The key question now is whether market expectations will shift as the reality of lower rates takes hold. For UK real estate, the real turning point will come when swap rates materially decline, only then will debt become genuinely accretive to transactions, unlocking the full benefit for deal structures.”

Meanwhile, the commercial real estate market is still feeling the impact of recent business rate changes, while the prime residential sector absorbs the knock of mansion tax.

Lloyd said: “Markets will still want reassurance that this is the start of a more predictable economic cycle. If rate cuts are sustained into the new year, we could see a more meaningful recovery in property activity as we head into 2026.”

Since August 2024, the BoE has now cut the rate six times. Governor Andrew Bailey said: “Inflation has fallen a long way from its peak of over 10% three years ago, and is 3.2% in the latest measure.”

“We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease.”

Lorna Hopes, mortgage specialist at the chartered financial advisers Smith & Pinching, was more positive, stating that the Bank of England had delivered a “Christmas present” for homebuyers.

She added that the news was not a surprise. “Britain’s slowing economy, and the spike in unemployment to its highest level in nearly five years, had left the Bank’s ratesetting committee no choice but to cut the base rate. With inflation cooling, the Bank had no reason to hold back.”

Jason Tebb, president of OnTheMarket, said: “This news will be welcomed by borrowers, particularly those due to remortgage in the coming year, who will be hoping that the rate shock will not quite be as exaggerated as it otherwise might have been.

“Previous rate reductions have been hugely welcomed by buyers and sellers alike, boosting confidence, easing affordability and giving much-needed impetus to the market, particularly since the stamp duty concession ended and the Budget did not offer anything to replace it.”

Peter Stimson, director of mortgages at the lender MPowered, said: “In the end it was a slim margin rather than a slam dunk. With inflation falling away and Britain’s economy shrinking, the markets had convinced themselves that today’s decision would be a full-throttle cut, which would be swiftly followed by more in 2026.

“The narrowness of the vote suggests that the Bank’s ratesetting committee isn’t so sure. Nearly half of its members voted to leave rates unchanged, and the accompanying minutes were curiously ambivalent.”