The Bank of England’s Monetary Policy Committee voted unanimously to maintain Bank Rate at 3.75% citing global unrest increasing the cost of energy and other commodities affecting households and businesses. As a result the MPC anticipates a near term increase in inflation as it continues efforts to bring it down to the 2% target
In published meeting minutes the committee suggested CPI inflation was now likely to be between 3 and 3.5% over the next couple of quarters, having previously predicted it could fall back to 2% from April.
The mortgage market reaction in recent days has been instant. Barclays, HSBC, Lloyds Bank, NatWest and Santander, have all increased rates since the start of March with a diminishing number of sub 4% mortgages now available with Moneyfacts also reporting the average shelf-life of a mortgage has fallen to 14 days; the last time the shelf-life was as short was at the start of August 2023, at 13 days, a month prior it was 12 days, a record low since the data was first recorded in 2011. As a comparison, the average shelf-life was 15 days at the start of October 2022, when the ‘mini-Budget’ had an unprecedented impact on mortgage choice.
The consequences are “significant” said Joe Pepper, CEO of PEXA UK who commented:
“We have already seen UK lenders collectively pull hundreds of mortgage products as they are forced to deal with the mounting pressures of geopolitical volatility. From homeowners looking to remortgage to those only just beginning their property search, many were hoping for a rate cut this month so this will have an impact and stall market activity.
“This is driving a sense of uncertainty in the conveyancing sector. Pipelines will freeze, chains collapse, and resource planning becomes almost impossible. When rates do eventually ease, it could release a deluge of mortgage applications and transactions, putting significant strain on the UK’s conveyancing infrastructure as well as immense pressure on lenders to release funds as quickly as possible. Without more streamlined, digitally enabled workflows, the sector risks being overwhelmed by volume spikes, exacerbating the enormous stress on conveyancers and causing avoidable delays. Implementing the right infrastructure to support conveyancers as they try to manage their capacity and provide the best possible client service at a difficult time is absolutely paramount.”
Other commentators point to a welcome stability an unchanged base rate brings at a time of volatility. Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau said:
“Few will be surprised that The Bank of England has held the base rate at 3.75%.
“With energy price pressures and ongoing geopolitical tensions creating uncertainty, the bank will want clearer evidence that inflation is moving sustainably back towards its 2% target before making any further moves.
“These external pressures could mean the first cuts take longer to arrive than many had hoped. Rate movements can feel unsettling, but mortgage markets often price in expectations well in advance, meaning the impact on new deals may be less significant than many fear.”
Nathan Emerson, CEO of Propertymark, added:
“The decision to keep base rates on hold provides a welcome sense of stability for the property market. Mortgage repayments remain predictable, which is critical for households balancing cost-of-living pressures. Stability in interest rates can support continued buyer confidence and property transactions, particularly in a market already facing supply constraints and rising house prices. For sellers and landlords, this environment allows for measured planning, while buyers can explore financing options without the immediate concern of rising borrowing costs.”
Andrew Lloyd, Managing Director at Search Acumen, described the response of the MPC as “prudent” in light of the risks posed by rising inflation.
“Without the conflict in the Middle East, today’s remortgagers might have been eyeing a far brighter outlook with rates expected to fall as low as 3% by summer. That is now a distant dream. For many households, this is a clear early hit to consumer confidence. Holding rates steady is the prudent response to rising commodity-driven inflation, but weakening consumer confidence keeps the UK economy stuck in the slow lane.
“The decline in interest rates over the past 18 months has been welcome, but today’s decision to wait and hold signals to markets to do the same. This will still hit consumer’s pockets, pressing pause on the immediate need for both domestic investor spending and affordable mortgage rates as banks pull mortgages like it’s Truss 2.0. There is an argument that after property tax reform last year dampened buyer spirits and the final fade-out of COVID-era cheap borrowing, home movers need more reasons to make their move, not less.”
“Ultimately, stability has its merits but will likely take the edge off any spring bounce we once hoped for.”
There was also industry relief the MPC did not knee-jerk into a rates rise said John Phillips, CEO of Just Mortgages and Spicerhaart:
“It’s a relief to see the MPC sit on its hands at its first meeting since the Middle East conflict. Speaking with industry colleagues, there was certainly a worry that we would see the central bank react with a rate rise. That said, it’s hard to predict where we go from here and what the future path of interest rates now looks like. So much depends on how drawn out this conflict becomes and the impact it has on prices and inflation more broadly. We shouldn’t rule out the prospect of increases in the future.
“It has certainly sent shockwaves through the mortgage market and forced many lenders to quickly remove and re-price products. As a result, we have seen around a 20% increase in remortgage business over the last week or so as clients looked to secure rates before they were pulled. Brokers have been putting in the hard graft and working late to ensure applications are submitted and rates are secured. Beyond that, we haven’t seen a real drop off in buyer registrations, valuation requests or mortgage appointments, signalling that the wider turmoil and uncertainty hasn’t yet filtered through to all buyers and movers. People are still getting on with the task at hand and are seeking expert advice to do so.”
The decision to hold at a time when there have been six interest rates cuts since August 2024 will be disappointing said Jason Tebb, President of OnTheMarket, adding “interest rate cuts have proven to be hugely important for the housing market over the past few months, providing impetus and enabling buyers and sellers to plan ahead with more confidence.
“With lenders pulling mortgage products and repricing upwards in recent days to reflect higher Swap rates and maintain service levels, there is a degree of uncertainty and volatility. That said, people need to move, particularly those who may have delayed due to prolonged speculation surrounding last autumn’s Budget, and they are proceeding with their transactions.”
The MPC meeting minutes conclude by saying the committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices, and stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.
