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UK interest rate cut provides opportunity for cash rich property investors

According to Yolande Barnes, head of residential research at Savills, it is not the current rates that matter but more the longer term pattern. 'If low rates persist, this could spell a new era in residential investment,' she said.

'As rental returns available on investment properties start to look very attractive in relation to medium and long term dated gilts, we could see the point arrive at which institutions start getting into residential property in a big way,' she explained.

The combined effect of price falls and exchange rate movements has already stimulated serious international investor interest particularly in prime central London and we would expect this trend to continue,' she added.

The rate cut could also encourage cash buyers who have been adopting a wait and see attitude, according to the international property company's research department.

'The interest rate cut is unlikely to alter the short term fundamentals of the housing market. We identified some months ago that the major downward pressure on the UK residential market is the lack of mortgage availability, and we can now add the significant fears about job security,' said Lucian Cook, direct of Savills Research.

'However, the cut may well draw out of hiding some cash buyers who have been monitoring the market from a distance. With reduced returns likely to be available on any cash in the bank, this may just be the trigger they need to buy at a time when prices, although not at the bottom of the market, are becoming attractive for those prepared to take a medium term view on the housing cycle,' he added.

For UK buyers, this impetus is likely to be restricted to cash rich investors and those who sold at or near the peak, cashed in on their equity and temporarily sought refuge in the rental market, he pointed out. 'Increased applicant interest in these categories was seen in January across our agency network,' said Cook.

A meaningful recovery in the property market is still some way off, he added. 'For mortgage-dependant buyers the risk is that lenders, keen to retain savers, may remain reluctant to free up mortgage finance, or may choose to pass on rate cuts on new mortgage products only when liquidity returns to the lending markets,' Cook concluded.