The Bank of England has held the interest rate at 5.0%, which was expected but could still come as a disappointment to some mortgage holders.
Eight of the nine members of the Monetary Policy Committee opted to keep it unchanged, with external MPC member Swati Dhingra opting for a cut.
The US Federal Reserve made a 0.5% rate cut yesterday, though this represented something of a catchup, as it was the first US rate cut since the covid-19 pandemic.
CPI inflation remained at 2.2% in August, close to the 2% target, and if that stability continues it’s likely at least one rate cut could follow in the months ahead. The next MPC meeting is on 7 November.
Sam Richardson, deputy editor of Which? Money, said “the Bank’s decision to hold rates where they are won’t come as a surprise, but will nevertheless still be a disappointment to homeowners coming towards the end of their fixed-term deal who would have been hoping for downward movement in the market.
Mortgage rates have been falling gradually, with the market-leading two-year fixed rate dropping below 4% for the first time in two years earlier this week. While sub-4% deals have made the headlines, they’re only available to people with the very biggest deposits.
Many households are still struggling, and while this decision means that rates are unlikely to rise beyond current levels, the pace of rate cuts is now likely to slow down. As ever, the most suitable mortgage option will depend on the applicant’s individual circumstances. If you’re unsure about which deal is best for you, then consider talking to a mortgage broker.”
Jason Tebb, president of OnTheMarket, said “as widely expected, the Bank of England has voted to hold interest rates at 5%. Even though inflation is seemingly under control at 2.2 per cent, there are concerns that it may increase over the autumn on the back of higher energy bills.
The Bank remains cautious for now, although the markets expect another rate cut before the end of the year, particularly now as the Federal Reserve has also taken the plunge and reduced rates.
While there hasn’t been a reduction in base rate this time around, this hold suggests a more stable outlook which is welcome after the pain of consecutive rate hikes and enables borrowers to plan ahead with more confidence. Meanwhile, softening mortgage rates are helping release some pent-up demand as buyers and sellers who have been waiting to see what happens with interest rates finally make their move.”
Bank chief executive Andrew Bailey says it’s “vital” that inflation – currently running at 2.2% – remains low. “So we need to be careful not to cut too fast or by too much."
Just one member of the Bank’s nine-member rate-setting committee voted for a cut last week but experts are predicting the Bank will cut rates further in November.
What the BoE rate hold means for the property market
The Bank of England is following a well-trodden path – pausing rates while it waits for more clear-cut signs that inflation is under control. The mortgage market has the same map, so was expecting it to take this particular direction. It means we’re unlikely to see any major repricing from the banks.
Those on tracker rates and standard variable rates will be disappointed. When they opted for these deals, they’ll have hoped rate cuts would come thick and fast, but cuts have been decidedly skinny and sluggish. Fortunately, there’s some hope ahead, with the market expecting more cuts this side of Christmas, and the prospect of their finances finally easing a little.
The vast majority of the mortgage market is still fixed, and there’s better news for those looking for a new deal or facing a remortgage, because the market has already priced in the cuts it’s expecting over the next couple of years. The average 2-year fixed rate mortgage is currently 5.37% – a far cry from just three months ago when it was knocking on the door of 6% (5.97%). Competition is hotting up, and we’ve seen rates launched at less than 4%, which bodes well for buyers.
The double whammy
This is particularly good news for higher earners, who are carrying bigger mortgage, for whom the prospect of remortgaging onto a higher rate was particularly alarming. Figures from the HL Savings & Resilience Barometer show that the average middle earner has a monthly mortgage payment of £567 – around half that of those on the fifth highest incomes, who pay £1,053. It’s also good news for younger buyers, who face the double whammy of having less equity and being on a lower income. Millennial and Gen Z owners pay an average of £742 a month, so will have been particularly worried that a remortgage could make an even bigger dent in their monthly budget.
The hold on rates isn’t the most significant thing driving sentiment right now, so is unlikely to move the market. Buyers are benefiting from wages outstripping inflation – making them feel wealthier. Meanwhile, mortgage rates have been falling, making properties feel more affordable. The longer this continues, the more positive sentiment is likely to be, and the better the chances of a lively property market as we go through the rest of the year.”