Experts give their verdict…
Not since Cinderella nervously eyed the ominously striking timepiece at her fabled ball has 12 o’clock been such a focal point for onlookers.
At midday every six weeks or so, the Bank of England’s Monetary Policy Committee announces what it’s doing with the all-important base rate… and today is one of those days.
Its nine members, who determine the country’s key monetary policy issues, have the arguably unenviable task of deciding whether to raise it, retain its current rate, or reduce it – the latter potentially to huge cheers and instant popularity.
The long-held view has been that we would see a decrease in the spring, from the 5.25% that’s been held since last August. But before whipping out the party poppers, Mortgage Introducer checked in with some key industry names, for their take on what might happen.
John Phillips (pictured left), CEO of Just Mortgages, one of the largest mortgage brokers in the UK, wants to see the committee make its first cut to the base rate, but he believes the most likely outcome is another hold.
“Those early predictions of a first cut in May, now look set to come in the summer as the Bank of England tries to cool growing sentiment among the markets, but also the public as it continues its pursuit of its 2% inflation target,” Phillips noted.
“It’s obvious that the central bank must exercise caution to reach 2% – especially with global events, rising inflation in the US and a number of macroeconomic pressures. However, there’s always the risk that a decision taken too late could stifle the economy or pour water over the positive momentum we have seen in the mortgage market. Talks of rates staying higher for longer have already pushed up swap rates and caused many lenders to re-price products.”
He added: “Nonetheless, brokers are doing their absolute best to help potential borrowers navigate the market and sustain this growing optimism and confidence. At least we are talking about when rather than if the base rate is cut. For the sake of affordability, for potential buyers and for the market as a whole, my hope is this decision comes sooner rather than later.”
Meanwhile, Karl Wilkinson, CEO of broker firm Access Financial Services, believes there is no doubt the Bank of England will stick at 5.25%, taking its lead from the US Fed.
“When will the respite come?” Wilkinson asked (perhaps not expecting an answer). “High interest rates, inflation and cost-of-living continue to take their toll on what should by now be a blossoming spring property market.
“Instead, lenders have watched swaps rising and increased their mortgage rates accordingly. Now as much as ever, it is important for advisers to listen to their clients and help ease financial pressure.”
How big an influence is the United States in the base rate decision?
George Sanford (pictured centre), at specialist mortgage broker Vibe Finance, also anticipates that the committee will hold fire, despite UK inflation being seemingly under control. He, too, points out the potency of American influence in the decision.
“It would be extremely unlikely for us to take the first step before the Fed and the US reduce their rates,” reasoned Sanford, a specialist mortgage adviser. “Given their inflation is not looking as good as ours then that doesn't look like it will happen in the short term. This is backed up by the latest movements in SONIA Swap rates which despite a recent decrease are now pointing towards only one base rate decrease this year with current one year swaps sitting just below 5%.”
Likewise, industry commentator David Hollingworth, associate director of communications at mortgage broker L&C Mortgages, was dampening Mortgage Introducer’s excitement at the prospect of a rate cut. If there was any tumbleweed to be found in these parts, it would be tumbling into view, right about now…
“There’s not likely to be a lot of tension ahead of the base rate decision and it’s pretty clear that there’s unlikely to be any move,” Hollingworth declared.
“The hopes for the easing in base rate to start sooner rather than later look to have retreated a little and the question of when rate cuts may commence and how rapid the cuts may be is far from certain. That’s fed through to fixed rate pricing edging up during the recent rounds of mortgage repricing. That will have served to shake up some borrowers who may have been holding off in the expectation of further rate cuts and demonstrates that there’s ongoing uncertainty for rates.”
The best we might hope for, in Hollingworth’s view, would be a positive tone to the announcement of the decision.
“Advisers and their customers alike will no doubt be looking for a steer on when the Bank may feel confident enough to start to ease rates,” he said. “Fixed deals will already have priced that in, so unless there’s a surprise upturn in positivity, mortgage rates may be pretty unresponsive.”
Read more: UK inflation rate drops again
What part will inflation play in deciding the base rate?
Karen Noye, mortgage expert at wealth management company, Quilter, isn’t playing ball either, when it comes to optimistic speculation of a base rate cut – pointing out that there’s some concern around the ongoing pressures of wage growth and services sector inflation.
“The inflation outlook will no doubt be a key focus of the MPC meeting, with the Bank likely to reiterate its data-dependent stance given the pivotal role the upcoming data releases will play in its decision making,” Noye said. “Nonetheless, BoE Governor Andrew Bailey has said he believes inflation is heading in the right direction and interest rate cuts are in play, so it may not be too much longer before we see the Bank of England make its first move.
“In recent weeks we have seen fixed rate mortgage deals increasing slightly, which marries up with markets pricing in a high probability of the first rate cut being declared at the August MPC meeting. The housing market has been remarkably subdued of late, with a distinct slowdown in property transactions and a steadying of house prices despite entering what is typically a far busier spring season.”
She added: “A fall in interest rates later in the year could help buoy the market, presenting a more favourable borrowing landscape for prospective buyers and reigniting demand.”
Maria Harris (pictured right), chair of the Open Property Data Association, concurred – the committee has been managing expectations about a cut for the past few weeks, she believes, so she predicts that the rate will stay the same for the sixth consecutive time.
“Some of the big lenders have responded recently by increasing costs on fixed-rate mortgage deals,” she said. “The question on everyone’s lips is, with a General Election looming, will the MPC hold its nerve and maintain the relatively high rate until inflation hits its 2% target, or provide the popular option, a rate cut which would certainly be a welcome boost to the housing market? There are many borrowers who are due to come off cheaper fixed rates this year too.”
The general consensus is that we can expect a reduction or two before the end of the year, said Charley O’Neill, senior mortgage and protection adviser at The Mortgage Mum.
“With inflation announcements before the next assessment in June I feel that the first decrease may be around that time, should the news around inflation be on track as expected,” O’Neill commented. “I hope for reductions in the near future as lower interest rates would be great news for our clients, but for now, the stability of no change is also welcome and a comfort.”
Adam Oldfield, chief revenue officer, of financial services technology company, Phoebus, said: “When the US sneezes, we catch a cold. With the US Federal Reserve holding interest rates at 5.25% to 5.5% for the sixth straight run, it is highly unlikely that the Bank of England’s Monetary Policy Committee will lower the base rate.
“The surprise hike in US inflation earlier this year shook markets and will no doubt have influenced the MPC’s previous decision to stick at 5.25%.
“However, the influence of the MPC base rate on lenders has lessened to the extent that mortgage lenders have already taken decisions into their own hands. This was borne out by the recent hike in interest rate across UK mortgage lenders, driven by a rise in swap rates. Unfortunately, this will make things a lot tougher for many UK borrowers looking for mortgage deals who already struggling with high costs of living.”
