The Bank of England’s (BoE) Monetary Policy Committee (MPC) took the decision to maintain the UK base rate at 5.25%.
Out of the nine members comprising the Monetary Policy Committee, seven opted to maintain the current rate, while two advocated for a reduction. The governor of the Bank emphasised the necessity to observe further evidence of declining inflation before considering a base rate cut.
However, Governor Andrew Bailey expressed optimism regarding the ongoing positive trends. Typically, higher interest rates aim to curb inflation by increasing borrowing costs, thereby limiting consumer spending power. In the UK, inflation has decreased to 3.2%, yet it remains above the Bank’s targeted rate of 2%. Commenting on the Bank of England’s MPC’s decision to hold rates, Joe Pepper, UK Chief Executive Officer, PEXA, said:
“A decision to hold the interest rate is no real surprise, but a disappointment nonetheless for borrowers hoping to see it slashed. Inflation, though dropping ever so slightly, is clearly still top of mind for the MPC, leading us all to await a first cut in either June or August.
It marks another blow for the housing market, which is seeing reduced activity as potential buyers await a reprieve in costs and remortgagers understandably wait for lower rates. As such, demand is building, and we must use this time to prepare to deal with the surge when rates do eventually drop. Lenders and conveyancers just want to provide the best service, but they still have to rely on antiquated infrastructure. When the surge in demand does inevitably come, they’ll be forced to put their foot on the accelerator with the handbrake still on.
Widespread digital transformation is the only thing that can address the current inefficiencies in the system, radically speed the process up and free up conveyancers so that the system can support buyers when they take advantage of falling rates.”
What’s more, Matt Smith, Rightmove’s mortgage expert said that after a few weeks of mortgage rate increases, we’ve seen early signs that this current run of rate increases has peaked and we’d expect that average mortgage rates “will begin to trickle down again soon”. He added:
“Inflation still seems to be heading in the right direction, a position that the Bank has highlighted in its decision today, with a view that it will fall below the 2% target in the coming months. The market is still assuming that the first Base Rate cut will happen in the Summer, and today’s decision is unlikely to change that view. All eyes now turn to the publication of April’s inflation data, which is the next key milestone and is likely to determine the immediate direction of mortgage rates in the UK.”
Nathan Reilly, Director Twenty7tec said that the Bank of England has “held their decision again at the 16-year high figure”. He continued:
“What’s clear since the rates started rising is that the sub £250k housing, often the hunting ground for first time buyers and buy to let landlords, is becoming an increasingly challenging place. The proportion of searches by landlords has dropped by 10% compared to the same period last year. And in April alone, the proportion dropped 7.5% for those looking to get their foot on the ladder compared to the same period last year. It’s essential that we reinvigorate this side of the market so that the whole housing market can function.”
Jonathan Rolande, from the National Association Of Property Buyers said:
“The decision is understandable – perhaps it is better to hold steady and not risk overheating the market but I have to admit to disappointment. The market has been confidence-free since September 2022, when rates began their upward climb to the current 16 year high.
Sometimes, being on the frontline gives a better view than the generals see back at HQ. I see a fragile market with no reason to overheat since September 2022. However it needs an injection of optimism.”
Sam Jordan from Search Acumen, property data and insight provider, said that the announcement “reinforces that talk of turning a corner may have been premature”. He added:
“As we have seen over recent weeks, despite falling inflation and a stable base rate, major banks are still increasing the cost of borrowing. This is based on the belief that rate cuts from the Bank of England may now be further away and slower than initially expected at the start of the year. Should the economy continue to follow its current course, it will eventually support growth and improve investor confidence. However, this year will continue to be challenging for borrowers and there will be a longer lag before improvements in the macro-economic landscape filter through into the real-world experiences of homeowners and real estate investors.”
Nathan Emerson, CEO of Propertymark, commented:
“As interest rates continue to remain the same in order to combat levels of inflation this country has not witnessed for decades, Propertymark is optimistic that buyers will continue to adapt to these new market conditions. Our own Housing Insight Report discovered that there has been a 4 per cent increase in the number of potential buyers registered, and an 8 per cent increase in the number of available properties to rent, which shows that there are some reasons to remain optimistic that the housing market is recovering from shock economic factors from the last three years.”
