The move from the Bank of England to cut base rate for the first time in four years, from 5.25% to 5%, has brought some optimism to the housing market. 

Lower mortgage rates should encourage some first-time buyers who have waited on the sidelines.

However, the scope for house price growth looks limited, something illustrated by Nationwide data which showed values slipped 0.2% in August compared with July. Although activity looks set to be brisk this autumn there is now more inventory around and therefore more competition. 

Buyers will also still be constrained by budgets. 

Although wages have been rising, the post-Covid cost of living squeeze has yet to fade dramatically and the cost of debt continues to ramp up for a cohort of homeowners remortgaging. 

What’s more, the prospect of more significant falls in interest rates are reliant on inflation coming more sustainably under control, which is far from a given. 

With ultra-low interest rates now a distant memory, and a regime of bank rates in the region of 4% in the medium term, a period of stagnation for the UK housing market appears the most likely outcome as affordability gradually catches up.

Consequently, investing in physical bricks and mortar for income isn’t as attractive as it once was. Higher interest rates have increased the risk-free rate from safe investments like government bonds and cash, depressing the values of other assets. Tighter regulation and higher taxes have also eaten away at the yield available from rental properties, as well as increased the hassle.

All things considered, it could be possible to achieve a better rate of return by investing in property through indirect investments. It’s also possible to hold these types of investments in tax efficient products, like Self Invested Personal Pensions (SIPPs) and Individual Savings Accounts (ISAs). 

Any investments held in these types of accounts won’t be subject to income tax or capital gains tax (CGT). You can also get tax relief on the contributions made into a SIPP.

Saving on tax where possible is more important than ever as the new Chancellor, Rachel Reeves, recently admitted tough choices on taxes to recoup a £22 billion “black hole” in the nation’s finances. 

She reiterated she would not raise VAT, national insurance, or income tax, so increases to CGT, or indeed special measures for second properties, could be on the table.

* Rob Morgan is chief investment analyst at Charles Stanley *