Today, the Bank of England’s (BoE) Monetary Policy Committee (MPC) took the decision to maintain the UK base rate at 5.25%.
This marks the second consecutive decision to hold interest rates at their current level following 14 consecutive rises beginning in December 2021. Though these historic increases have had some positive impacts on the UK’s macro economy, such as wages overtaking inflation for the first time in over three years, it’s difficult to ignore the plight of borrowers as mortgage-holders face record-high repayments as approvals for remortgaging fell to their lowest levels since 1999.
The continued high rates are also forcing property developers to hold off on investments, with many still concerned about the UK being unattractive for investment. The BoE’s decision comes at a time when mortgage approvals have fallen to an eight-month low as more borrowers on fixed-term agreements choose to stay with their existing lender. In the eighteen months since the hikes began, inflation has fallen from a high of 10.7% to 6.7%, as of September.
Chairman of Cornerstone Group International, David Hannah, argues that the focus of the MPC ought to be on first-time buyers, urging the BoE to reduce interest rates to 4.75% which would help the property market recover and deliver opportunities for those looking to get on the property ladder. He added:
“It is disappointing to see the Bank of England’s announcement that interest rates will remain at 5.25% at a time when the UK property market is at risk of freefalling into a crash. Developers aren’t building at the moment; prospective first-time buyers are holding off from entering the market and we’re seeing a mass exodus of landlords – largely caused by sky-high interest rates. Not to mention the plight faced by those who’ve come to the end of longer-term fixes to find their repayments skyrocketing to unmanageable levels.”
Joe Pepper, CEO PEXA UK said that the decision to maintain the base rate will come as a “welcome respite to borrowers who were worried about further rises on their mortgage repayments”. He continued:
“We’ll see fewer borrowers having to scramble to lock in the lates deals, especially since the competitive repricing from lenders in recent months in an attempt to drive activity. Despite the decision to maintain the interest rate, many borrowers who took out a two-year fixed rate mortgage during the Stamp Duty holiday in 2021 will still see a sharp increase in their renewal rate, many will likely be hoping we are indeed at the peak of the cycle and lenders will continue to offer more competitive rates.
At a time when speedy processing could be the difference in securing the most affordable deal, technological innovation will be needed. Digital remortgages are going to be key in transforming the property market, helping build capacity, reducing friction and providing customers with more choice in a market where consumer outcomes are at the forefront for the regulator.”
What’s more, Rightmove’s mortgage expert Matt smith said that the pause is a “good indicator that the Base Rate has reached its peak”, which will be “reassuring to those looking to take out a mortgage soon”. He added:
“Today’s decision was widely expected, as many of the factors that contributed to the hold in September appear to be continuing. Plus, the drop in energy prices as a result of the recent Price Cap change means we’ll hopefully see a drop in inflation when next month’s figures are released.
We’ve now seen the arrival of a sub-5%, 5-year fixed rate mortgage in the important 85% loan-to-value bracket – the deposit size we see for many first-time buyers and home-movers. After today’s news, we can expect mortgage rates to continue to edge downwards.”
The latest mortgage rates from Rightmove also revealed that the average 5-year fixed mortgage rate is now 5.36%, down from 5.97% a year ago. Also, the average monthly mortgage payment on a typical first-time buyer type property when taking out an average five-year fixed, 85% LTV mortgage, is now £1,164 per month, down from £1,228 per month a year ago.
Commenting on the interest rate pause, Managing Director of House Buyer Bureau, Chris Hodgkinson, said that we’re seeing “clear signs that the property market is now starting to stabilise…”. He continued:
“…although transaction levels and sold prices remain down on the historic highs seen in recent years, as the higher cost of borrowing and wider cost of living continue to restrict home buyers.
So today’s decision to hold interest rates should be viewed as a welcome positive for the property market and should allow buyers and sellers alike to act with a greater degree of confidence going into 2024.”
Adam Oldfield, chief revenue officer at Phoebus Software, said:
“We may not have had the ubiquitous crystal ball to help us predict the MPC’s decision today, but it turns out we didn’t need one. Keeping the base rate steady for another month is the sensible thing to do. We’ve been calling for the committee to give all the increases this year time to take effect and, although we know there are other factors at play, the overall effect is some breathing space and hopefully a boost to confidence.
Lenders have been reducing interest rates recently as two-year swap rates fall below five per cent, so this hold from the Bank of England may well encourage more deals to come to market. The number of people coming off fixed rates is very high and many have been flipping onto SVRs, which is driving the cost of mortgage payments up past a point not experienced before. Arrears are increasing, which is almost inevitable, but perhaps those on higher rates may find better deals in the coming months?”
