Base rate hold believed to be due to latest inflation data
The streak of 14 consecutive interest rate hikes has finally come to an end, after the Bank of England’s Monetary Policy Committee held the base rate at 5.25% on September 21.
Mortgage Introducer discussed the decision with an expert to look at what this means for the wider market.
Important role to play
Karen Noye (pictured), mortgage expert at Quilter, said the recent announcement by the Bank of England to maintain the interest rate at 5.25% will play an important role in the future of the mortgage and housing market. The decision, which comes following the surprise dip in inflation, she said, will have significant implications.
Firstly, Noye it suggests that the Bank of England is attempting to strike a balance between supporting economic growth and containing inflationary pressures.
“Historically, a decrease in inflation might have prompted the bank to lower interest rates to further stimulate economic activity, but with inflation still running far above the 2% target, it is likely that they will hold interest rates elevated for some time yet,” Noye said.
For current and prospective homeowners, she said this decision to hold interest rates where they are offers a mixed bag. On the one hand, Noye said those on variable rate mortgages will not see an immediate increase in their monthly payments.
“The stability in interest rates provides a reprieve for borrowers, especially for those who might have been concerned about rising costs in an environment of increasing rates,” she said.
In turn, Noye said this could lead to increased consumer confidence and spending as homeowners feel more secure in their financial positions.
“People may feel more inclined to return to the property market boosting sales and in turn keeping prices buoyant,” Noye added.
On the other hand, she said for those looking to remortgage or take out a new mortgage, lenders will remain stringent in their criteria and rates are still so different to what we have been used to over the past few years.
“Although fixed rates have reduced a little, we might not see significant reductions offered to new borrowers or those looking to switch, but there is no doubt that things are moving in the right direction,” Noye said.
Moving forward
Lenders are still commercial entities, she said, and they will need to compete for customers, so price wars might be expected helping to push rates further down, especially now the tide is turning.
“It is also worth noting that the housing market often reacts sensitively to perceptions and predictions about future monetary policy,” Noye said.
The Bank of England’s decision, she said, might be interpreted by some as a sign of economic stability, leading to increased confidence in the housing market. As such, Noye believes the next steps will really serve as a bellwether for the future of the UK housing market.
While the immediate impact of the Bank of England’s decision on the mortgage market is a stabilising one, Noye said its long-term effects are more ambiguous.
“Borrowers on variable rate mortgages can breathe a sigh of relief, at least for now, but those looking for new mortgage deals may need to navigate a more complex landscape,” she said.
As always, Noye said the interplay of various economic factors will determine the trajectory of the mortgage market in the coming months.
What are your views on the Bank of England’s decision to hold the base rate at 5.25%? Let us know in the comment section below.
