Bank of England holds interest rates at 5.25%

Yesterday's 'surprising' inflation data, revealing an unexpected slowdown in UK price rises in August, seems to have ended the Bank of England's unbroken streak of 14 consecutive rate rises.

Related topics:  Finance,  Base Rate,  Bank of England
Property | Reporter
21st September 2023
BoE 700
"There is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that"
- Andrew Bailey - Bank of England

The Bank of England's Monetary Policy Committee has voted 5-4 to keep the Bank Rate at 5.25%, having previously raised rates 14 times in a row to tame inflation.

The industry has been on the fence since yesterday as to whether the Bank would announce a 15th consecutive rise to 5.5%. However, recent figures released by ONS this week revealed that CPI inflation saw a surprise fall to 6.7% in August.

Bank of England Governor, Andrew Bailey, commented on the decision: “Inflation has fallen a lot in recent months, and we think it will continue to do so,.

“But there is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that.”

As you would expect, the industry was quick to react. Here's what they said:

Hina Bhudia, Partner, Knight Frank Finance, said: "Yesterday's positive inflation figures and the Bank of England's decision to hold the base rate at 5.25% will both pave the way for lenders to make more cuts to mortgage rates in the weeks ahead.

"The pace at which borrowers are opting for tracker mortgages over fixed rate products will now pick up. Both trackers and two-year mortgages are priced in similar ranges. If the base rate has now peaked and rate cuts begin around the middle of next year as analysts expect, then borrowers stand to save money by opting for a tracker mortgage.

"Mortgage rate cuts have improved sentiment significantly, but they will eventually reach a natural plateau, with the best-fixed rate deals starting with a four."

Andrew Gall, Head of Savings and Economics at the BSA, said: “With the latest inflation figures showing a fall, and today’s decision not to increase the Bank Rate, many consumers will no doubt start to feel that there is finally a light appearing at the end of the tunnel.

“This week is UK Savings Week, and for those with savings, the sharp increases in the Bank Rate over the last 18 months means higher rates are available to them.

"There’s a wide choice of savings accounts on offer, which vary depending on the provider, term and access required, with attractive rates available for all levels of savers. Shopping around can now make a sizeable, financial difference, both for existing savings and those who are just starting a regular savings habit.

“Mortgage borrowers are likely to breathe a collective sigh of relief that the Bank Rate is unchanged, after 14 consecutive rises.

"However, for first-time buyers, the higher cost of a mortgage compared to two years ago, alongside the increased prices for energy, food and other items, will have a considerable impact on what they can borrow. They may need to lower their ambitions about the property they would like to buy as they are unlikely to be able to borrow at the level they might have achieved before the Bank Rate started to rise in December 2021."

Nathan Emerson, CEO of Propertymark comments: “It’s positive to see that the bank rate has remained unchanged this time around and will be reassuring for those looking to enter the housing market especially. This now indicates that rises to interest rates have been impactful and that the fall in house prices has helped to even the affordability playing field and keep the wheels of the housing market turning.”

Paresh Raja, CEO of Market Financial Solutions, said: “It was a close call and a welcome surprise for most. By and large, lenders had expected - and priced in - another 0.25% hike today, so this decision will inject a little more spark into the market.

"Indeed, even with the expected hike, rates had stabilised in recent weeks, with the lending industry increasingly confident that we’ve reached the top of the interest rate hill that has been climbing since December 2021.

“Still, there will be a natural period of adjustment in the months ahead. Looking at the bigger picture, a base rate of 5.25% is not abnormal, but borrowers had grown accustomed to a period of record-low rates.

"As we are now less likely to see any notable swings in the base rate, house prices will likely settle as buyers can establish what their real spending power is. Lenders and brokers must be proactive in helping in that regard - providing clarity and assurance to borrowers wherever possible, allowing them to enter the property market with confidence.”

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, comments: “After 14 long months of hikes, today’s hold in the headline rate will offer much-needed relief to homeowners. Whilst there isn’t obviously a reduction today, this announcement should offer a glimmer of hope that we’re nearing or have reached the peak, as well as providing a moment of respite for mortgage holders in the long-running interest rate cycle.

“Fixed rates however continue to fall, which is good news and the pause in rate increases will also be helpful for those on variable and tracker rates. Much will ride on the next set of inflation figures, and falling inflation will determine how long this pause holds before rates start to be reduced.

“As always, those struggling or concerned about their repayments should speak to a mortgage adviser for expert advice, and to secure a deal that would suit their financial circumstances.”

Adam Oldfield, chief revenue officer at Phoebus Software, said: “You have to wonder whether we are sometimes playing a game of ‘follow the leader’, as the MPC’s decision to hold interest rates comes just a day after the Fed made the same decision. That said, it will be music to the ears of mortgage borrowers.

"There have been many calls in recent months for the Bank of England to take a breath and give the current measures time to take effect. Perhaps they are finally listening.

“No one expects rates to come down, at least until inflation is closer to the government’s target, but with over 500,000 fixed rate mortgages coming to an end in November, December and January (FCA), this is better news than expected.

"A period of calm, especially heading into the Christmas period, will be good for overall confidence. Add this to the government’s U-turn on buy-to-let EPC upgrades and, all in all, it’s been a better week for the market. Let’s hope we see inflation continuing its downward trajectory next month.”

Gareth Lewis, managing director of property lender MT Finance, says: "Some good news at last for the market, the beginning of the consistency and stability it needs.

"Too much uncertainty is not good for confidence but with inflation coming down further and the Bank of England choosing to keep rates where they are, in theory, this should be the peak.

"The knock-on impact is that borrowers have a better idea as to where they stand and where mortgage pricing is going to be. Don’t get me wrong – plenty still needs to be figured out as affordability is still an issue, thanks to the many rate rises we have already seen.

"But this is something lenders can strategise around in terms of products and people will be more willing to take out a mortgage as they will have a better idea of where rates will be in six months’ time.

"This is a great opportunity for the back end of the year."

Matt Thompson, head of sales at Chestertons, says: “Today’s announcement brings to an end a sequence of 14 consecutive rate hikes since March 2020. Speculation had intensified in the last week that the Bank would leave interest rates unchanged following the recent announcement that interest rates were nearing their peak.

"This though does not mean that the Bank has finished its current cycle of interest rate hikes, with the consensus expectation being for one more increase as the Bank continues to address high inflation. Once this has been reached, the Bank is expected to maintain interest rates at that level as it waits for the impact of higher interest rates to feed through to the weakened economy.

“The good news for borrowers is that the cost of borrowing is expected to stabilise with the Bank rate; although we don’t anticipate mortgage rates will return to the low levels seen in recent years. Nonetheless, we expect a positive response from buyers, who are now able to make financial decisions based on greater certainty that the cost of borrowing won’t increase much further.”

Clare Beardmore, Director of Legal & General Mortgage Club, comments: “The Bank of England’s decision today to put off a further rate rise will provide some relief for homebuyers and those who need to remortgage. Inflation dropped to 6.7% in August, and the Bank clearly believes that existing interest rate rises are already having a positive impact.

“Over the past week, we have already seen reductions in interest rates on some mortgages.

"However, pricing remains higher than before, so it comes as no surprise that a growing number of buyers, particularly first-time buyers, are looking to the Bank of Family for support.

"In fact, our latest research shows that this year family and friends will be involved in a record-breaking 318,000 property transactions. Perhaps worryingly, nearly three-quarters of those who step up to provide a financial gift are not seeking professional advice.

“In the challenging economic environment we face today, it is all the more important that buyers and those supporting them seek advice. Advisers will be able to guide aspiring home buyers, and the Bank of Family, to ensure they are making the best decisions for their circumstances.”

CEO of Octane Capital, Jonathan Samuels, commented: “The latest figures released this week suggest that inflation is now starting to ease. This is why the base rate has been left unchanged and will no doubt be heralded as proof of success by the Bank of England with respect to their approach to managing the economy.

"However, it’s fair to say that had they acted with greater speed and intent, the rate of inflation wouldn't have maintained such a stubborn trajectory in the first place.

"Previous incremental increases to the base rate simply haven’t been effective enough and, as a result, the financial hardship felt by many households has been unnecessarily prolonged.”

Jason Ferrando, CEO of easyMoney says: “Yet another base rate increase may have been viewed as overkill due to the fact that inflation has started to ease in recent months, but it’s fair to say that the job is far from done and so many will argue that a freeze perhaps wasn't the right path to take today.

"We’re yet to see prices actually fall and it’s simply the speed of increase that has reduced. So it would be a shame for the Bank of England to fall asleep at the wheel now, just as they were starting to make some progress.”

Director of Benham and Reeves, Marc von Grundherr, commented: “Today's freeze will be a small victory for the nation's homebuyers who have seen the financial goalposts move constantly in recent months. But despite rates remaining unchanged there will still be a real worry for those coming to the end of a fixed rate term, having previously locked in at a relatively affordable rate when they first purchased.

"When their mortgage term does expire, they are likely to find that the cost of their monthly repayments has risen considerably and this is really the last thing anyone wants to contend with, not only with the current cost of living, but with Christmas just around the corner.”

Managing Director of Barrows and Forrester, James Forrester, commented: "Good news for borrowers and today's decision will bring about a notable boost to an otherwise uncertain housing market.

"We've already seen signs that mortgage rates are falling this week, driven by a reduction in swap rates and this could well be the peak, with rates set to reduce from here on out."

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented: “Despite today's freeze many of those considering a property purchase are likely to remain sat on the fence while the cost of borrowing remains considerably higher than it has in recent times.

"For sellers, this means less interest from buyers, a prolonged transaction timeline and a greater chance that their sale could fall through due to heightened market uncertainty.

"The one positive to take is that house prices are yet to show any significant signs of instability and so those who can secure a buyer should still be able to sell for a good price, albeit it may take some time longer to do so in current market conditions.”

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