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Disappointment for mortgage and property markets as UK interest rates held at 5.25%| Reaction

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The hopes of mortgage and property experts have been dashed yet again. News is now out that the Bank of England’s Monetary Policy Committee (MPC) has decided to keep UK interest rates at their current level of 5.25%, for the seventh time in a row, voting 7/2 to keep things that way.

Why? Well, it’s largely down to yesterday’s UK inflation data. There had been a few question marks – and hopes were raised in some quarters – that we might start to see interest rate cuts sooner rather than later. Especially after the ECB had cut rates recently.

However, despite the good news that UK headline inflation had hit the Bank of England’s 2% target for the first time in almost three years, services inflation is proving to be the fly in the ointment. Coming in at 5.7% for the year to April, this is going to cause some concern amongst policy makers. This simply means that they can’t cut interest rates too quickly in case they inflame the situation and cause more long term inflationary pressures taking hold in the economy. Focus now shifts to the Bank’s next meeting in August but in the meantime the cost of living crisis continues to hit consumers and business budgets hard.

So what does today’s interest rate announcement and the latest inflation data actually mean for mortgage and property professionals and their clients? Experts from across the industry having been sharing their views with us as follows:

 
 

Ben Allkins, head of mortgages and protection at Just Mortgages, said: If there was ever a time for the Bank of England to finally pull its finger out, this was certainly it. Yet, in spite of inflation finally reaching the illusive 2% target, and recent GDP figures showing a flatlining economy, the MPC is still watching and waiting.

While we can be encouraged by positive levels of buyer registrations and requests for valuations and appointments, a cut today would have been a real adrenaline shot to help carry us through a summer full of potential distractions – particularly with a general election. For now, we just have to hope swap rates react favourably to further stability in the base rate, giving lenders some wiggle room to reprice.

“With potential borrowers still desperately trying to navigate the market and deal with clear affordability challenges, brokers must stay visible and proactive, highlighting the wealth of options out there to support all types of borrower, as well as the cash that is still available from lenders willing to lend.”

 

Paresh Raja, CEO of Market Financial Solutions, said: “Over the past ten months, as the Bank has decided to keep the base rate at 5.25% on seven consecutive occasions, it has been clear that it will delay cuts for as long as it needs to. But with inflation now at 2%, and the European Central Bank having made cuts, the pressure is mounting – all signs suggest that, once election turbulence subsides, the Bank will commence rate cuts, although it’s dangerous to take that for granted. All eyes will be on its next meeting on 1st August.

“Still, lenders, brokers and borrowers cannot get carried away. Cuts to the base rate will likely come in the second half of the year, but rates will not tumble back to the levels many had become accustomed to between 2008 and 2022. Yes, even a small drop in rates will benefit borrowers and inject more life into the property market, but the cost of borrowing has moved on, and the market is adjusting to that.

“As lenders, the onus is on us to provide flexibility and optionality to borrowers. Some may want the certainty of a fixed-term product, others would rather have a tracker in the hope that the base rate tumbles faster than expected; some will be patient in waiting to see the fallout of the election, others are ready to act now. It is important all types of buyers are supported in what remains an uncertain political and economic climate.”

 
 

Liz Edwards, money expert at personal finance comparison site finder.com, gives her thoughts saying: “The Bank of England has once again made the decision to hold the base rate at 5.25%. Although this outcome was widely expected, the news will no doubt still come as a disappointment for homeowners and potential buyers across the UK. Many first-time buyers have been in a state of limbo over the last couple of years as they wait for borrowing rates to come down. In fact, figures show that the number of first time buyers in the UK fell by a significant 21% between 2022 and 2023. Unfortunately, another base rate pause could continue to subdue buyer confidence, and it’s unlikely that we’ll see any real stability in the housing market until the base rate starts to come down and brings these volatile borrowing rates under control. 

“Previously experts were confident in forecasting a rate cut for June or August, but it now looks as though this may not happen until as late as September. Although the BoE has finally reached its 2% inflation target, the challenge will be bringing the base rate down without triggering an inflationary spike. In order to avoid this, the BoE will no doubt be cautious when it comes to rate cuts.”

Tony Hall, Head of Business Development at Saffron for Intermediaries comments:

 
 

“While the general election will have played a big role in the Bank of England’s decision to hold interest rates today, the market remains poised for the first interest rate cut of the year in the summer, with many positive signs that activity will increase over the summer. This includes the fact that inflation hit the Bank of England’s 2% target in May.

“If anything, the stability of the base rate, driven by the Bank’s desire to ensure inflation is fully on a downward trend before making any changes, has reassured consumers and businesses that the mortgage market has fully recovered from the volatility of recent years.”

, Nathan Emerson, CEO of Propertymark, comments:For the housing market it is vital there is further confidence regarding the long-term trajectory of inflation, and this is a stance the Bank of England has remained very open about before any commitment is made to start reducing the base rate. Propertymark remain keen to see rates reduced when circumstances allow and for this to then translate into competitive mortgage deals from lenders at the first opportunity. We have seen a much-needed progress since the start of the year regarding the housing market and it is vital that stability is maintained.”

 

John Fraser-Tucker, Head of Mortgages at online mortgage broker Mojo Mortgages said:

“Despite May’s inflation hitting the target level of 2% yesterday, the Bank of England (BoE) has decided to hold the base rate at 5.25% ahead of the General Election on July 4th. Naturally, the BoE tends to stay neutral during a General Election, so making a rate change weeks before voters head to the polls could be seen as influencing voters. 

“Moreover, the housing policies of the elected government are likely to impact the outlook for the base rate going forward. Labour’s manifesto seems to focus more so on first-time buyers as they’ve stated that they’ll make the existing mortgage guarantee scheme permanent under the name “Freedom to Buy”. They have also claimed that they’ll help over 80,000 young people get onto the housing ladder over the next 5 years. Comparatively, the Conservatives have focused on policies that they believe will bring down mortgage costs.

 
 

Given the contrasting focuses, it makes sense for the BoE to wait and see which government is elected before lowering the base rate, otherwise it could add more uncertainty to the mortgage market right now.”

Commenting on the Bank of England’s MPC’s decision to hold rates, Joe Pepper, UK Chief Executive Officer, PEXA, said:  

“The decision to hold the base rate is disappointing for borrowers, especially with inflation now at its 2% target. It now very much feels like mile 25 of a marathon for them as we crawl to the next MPC meeting in August in the hope it will bring a substantial cut. They are, understandably, waiting for this to see if they can get a cheaper deal before remortgaging.

 
 

“As such, we are expecting huge spikes in demand in H2. 1.6 million people are coming to the end of their fixed rates and this will be exacerbated by a myriad of housing policies being championed by each political party as part of their General Election campaigns, all of which are designed to create demand. This is all very well and good, but the current conveyancing infrastructure is simply not equipped to handle a significant or sustained increase in transactions.

“We must help lenders and conveyancers not only handle the increased demand from borrowers, but also to ensure that the UK benefits from the wider economic benefits that policies stimulating the front end of the market can bring. The role of private sector investing in technology and digital transformation will be pivotal in this, but it will only work on a national scale if supported correctly on a governmental level. Cross-sector commitment and collaboration to achieve modernisation is vital, and it can’t come soon enough.” 

Katie Pender, managing director of Target, said:With the inflation target of 2% met, some might be disappointed that the Bank of England has not reduced the bank rate today. However, the decision to hold the rate in a pre-election period was to be expected. The Bank is no doubt now waiting to see the outcome of the General Election before making a cut and the market will be watching what happens at the next MPC meeting in August closely.

 

“But the bigger structural question remains: will the next Government be bold enough to make the badly needed, big changes to the broken housing market? In the meantime, we can play our part by working to support lenders and borrowers with the latest technology that is essential to speeding up decision-making and improving customer satisfaction.”

Robin Rathore, CEO, Bamboo Auctions, comments on today’s interest rate hold:

Holding the base rate today is a prudent decision both economically and politically, particularly as we get closer to the general election date. Any move either way at this time could have led to doubts about the impartiality of the Bank of England and raise some serious questions.

 
 

“Now inflation is at target, it is likely that the Bank of England will now follow the moves made by the Central European Bank and other major economies – from August it’s likely that we will start to see gradual base rate drops over the next 12 months to ensure inflation remains steady.

“The good news is that despite the economic and political uncertainty of the last few months, the property market is now seeing more activity, with green shoots of positivity, confidence starting to return and momentum increasing. Our estate agent partners have been experiencing a 20% increase in new property instructions over the last month and buyers are returning into the market in earnest.”

Commenting on how a hold on interest rates reflects a level of economic stability, Daniel Austin, CEO and co-founder at ASK Partners, said: “A hold on interest rate rises was expected given the current election campaigns. However, it shows we have reached a level of stability in the economy with inflation remaining dampened. Although it doesn’t affect the affordability of debt, I think the stability will encourage mortgage lenders to continue to offer lower rate products and it provides a firm base for the next government to work from after the election. We are already seeing slight uptick in the market as values have reached the bottom. It has brought investment capital back into the real estate sector from buyers who have been waiting to make opportunistic, distressed purchases and the increased activity is bringing back buyer confidence. As a lender to property developers and investors, we have seen first hand the impact that rate hikes have had on borrowers and the market; continued stabilisation will be welcome news and rate cuts will undoubtedly come later in the year.”

Aman Bajwa, Co-Founder and Director at Fairbridge Capital, comments:   “Today’s decision comes as no real surprise, with wage growth and services inflation more stubborn than expected. However, the bridging market has repeatedly shown its ability to deal with, and thrive in, uncertainty, having had a record year in 2023 in terms of gross lending and a strong first half of 2024. As such, while the property market continues to wait on tenterhooks for a drop in the base rate, as well as the results of the upcoming general election, we can expect borrowers to continue to take advantage of the flexibility that bridging loans offer – something that has driven the market’s growth over the last 12 months.  

“Brokers are increasingly moving away from using bridging as a last resort, and beginning to see it as an option that can offer their clients capital and control when they most need it. At Fairbridge, we want to work with brokers as closely as possible to be able to provide a flexible solution to their clients when traditional financing won’t cut it.” 

Chris Little, Chief Revenue Officer, finova, said

The choice to maintain the base rate at 5.25%, a level sustained since August 2023, is unsurprising as the election nears and the Bank looks for further reassurance that price rises are stable. Although inflation has reached its 2% target, food and petrol prices remain high, suggesting that cuts may only be on the cards later in the year.

Given that this is the final base rate decision before the election, many first-time buyers have held back, waiting to see how the outcome will influence the market. However, with a cut expected towards the end of summer, this will likely spur activity and lenders will want to capitalise on this momentum – either by launching new product offerings or adjusting rates. With that in mind, planning ahead has never been more important and it is essential that lenders consider the role of technology to swiftly respond to these market changes. Harnessing personalised pricing capabilities, for example, will enable lenders to offer bespoke rates tailored to individual financial profiles, ensuring secure and affordable rates for buyers at a highly competitive time.”

Karl Wilkinson, CEO of Access Financial Services, said: “At 5.25%, the Bank of England (BoE) base rate remains at its highest level in 15 years. The impact of the delay in the BoE lowering interest rates will be devastating, or at least frustrating, for the masses of potential first-time buyers and mortgage brokers who have been waiting for Godot on an interest rate reduction since it hit 5.25% in August 2023.

“Unfortunately, though, the Monetary Policy Committee (MPC) wouldn’t want to be perceived as politicking with the General Election weeks away. It is ironic that in trying to avoid politicking, it is in fact politics that has influenced their decision not to start lowering base rates before the summer. This demonstrates yet another crack in the machine.”

Simon Webb, managing director of capital markets and finance at LiveMore, commented:

“The Bank of England’s decision to again hold the base rate at 5.25% comes as no surprise, continuing the bank’s trend of following market sentiment instead of steering it.

“Unfortunately last week’s manifestos also offered little stimulation to help older borrowers. The Conservatives’ pledge to increase the threshold at which first-time buyers pay Stamp Duty to £425,000 from £300,000 offers no support for older buyers, effectively trapped in their homes. If stamp duty was lifted for all buyers up to this threshold it would enable older borrowers to downsize, freeing up larger homes for younger borrowers.

The Labour pledges similarly fail to address older borrowers’ needs despite the very real fact that we have an ageing population, with over 20 million people currently over 55.”

CEO of Yopa, Verona Frankish, commented:

“With a seventh consecutive hold on the base rate we look set to enjoy a summer of stability and we’ve already seen the housing market respond with an uplift in both buyer and seller activity.

While the election may take centre stage over the coming weeks, it’s unlikely to dampen current market enthusiasm and the outlook for the year ahead is a very positive one considering we’re yet to see a reduction in interest rates.”

Jason Ferrando, CEO of easyMoney says:

We’ve now seen inflation dip to within the Bank of England’s two percent target but hopes of a rate cut today were probably a tad premature. That said, it’s looking increasingly more likely that one will materialise this summer and this will help to further strengthen a housing market that has seen stability return.

The downside of falling rates is, of course, that savers will now see the interest earned on their nest egg start to dwindle. We’ve already seen the rates being handed down to savers from the big banks start to fall since the base rate has been held and the prospect of a cut will make it all the harder to save for that all important mortgage deposit.”

Bradley Post, MD of RIFT, commented:

“There’s certainly light at the end of the tunnel for the nation’s households who have endured an extremely prolonged period of higher outgoings which has stretched them to breaking point financially.

While today’s decision might not be the one they wanted to hear, it will continue to provide a degree of stability and with inflation now falling to two percent, we should start to see the cost of living become more manageable over the coming months.”

Lomond CEO, Ed Phillips, commented:

“Stability has been key to the returning health of the UK property market in recent months and this stability has come by way of a freeze on interest rates since last September.

While the nation’s homebuyers will have been hoping for a reduction today, the decision to keep the base rate at 5.25% will, at least, continue to steady the ship.

This should help to further boost the growing levels of buyer activity that have been building in recent months and ensure that the year ahead is a far more positive one for the market compared to the uncertainty of last year.”

Director of Benham and Reeves, Marc von Grundherr, commented:

“No news is good news with respect to today’s decision and the certainty that will come from another hold on the base rate is certainly better than the string of consecutive hikes seen in recent years.

We’ve seen mortgage approvals top 60,000 approvals per month for three consecutive months now and this demonstrates that buyer confidence has been buoyed by the stability provided by a hold on the base rate.

With the election unlikely to dampen this growing market momentum, the UK property market remains in a very strong position, particularly with the prospect of a cut on the horizon.”

CEO of Octane Capital, Jonathan Samuels, commented:

“The Bank of England’s slow but steady approach to managing the economy has finally yielded the two percent inflation rate they desired, but it’s fair to say that this has taken quite a while longer than it may have had they acted with greater intent.

Given this fact, it’s hardly surprising that we’ve seen another hold today and the nation’s homebuyers will have to spend that little while longer contending with current mortgage rates.”

Sam Lindsay, Mortgage Planning Advisor, My Mortgage Angel, said: “With all eyes on the Bank of England today and the last MPC decision before the election, it’s no surprise they decided to hold rates again. Over the last few months, we have started to see more movement in the housing market but we’re not there yet – many aspiring homeowners are still adopting a wait and see approach.

“Once the new Government is in place, we may start to see some incremental base rate drops before the year is out with a view to getting some stability back in the market as rates start to move further back towards the 4% mark within the next 12 months. “Homeowners must keep in mind that if you look at the rates between 1995 and 2022, the average interest rate was 5.62%, yet in 1998 the average rate reached a huge 8.87%, and in 2021 the average rate reached 3.59%. I believe we are on a downward trajectory for the average rate, but there are many factors which can affect that.

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