The market is accepting the holding of the base rate, as future rises are predicted – Real Estate Strategy
The mortgage market welcomed the Bank of England’s decision to hold the base rate at 3.75% today, but said further increases were inevitable.
The decision to freeze the base rate came as the Monetary Policy Committee (MPC) decided it was necessary to control inflation.
The MPC voted by a 6–3 majority to keep the base rate at 3.75%. Three members voted to raise it to 4%.
The MPC said: “In response to events in the Middle East, crude and refined electricity prices remain volatile and higher than before.
“The impact of the energy shock on the UK economy has yet to be ascertained.” Monetary policy cannot influence energy prices but is set to ensure that the economic adjustment takes place in a way that will consistently achieve the 2% inflation target.
“The policy stance needed to achieve this will depend on the scale and duration of the shock, and how it spreads through the economy including financial conditions.”
The market agreed with the decision to hold the base rate, but said that MPC cannot keep playing the same card forever.
Pepper Money director of mortgages Ryan McGrath: “The hold gives borrowers a chance to breathe, but it doesn’t reverse the financial pressures that have built up over the last few years.
“Swap rates, which many lenders use to buy mortgage deals, are already moving in anticipation of where the prime rate is headed, so holding back doesn’t mean the product price will stabilize. Many customers are still shelling out cheap fixed rates for deals costing hundreds more per month, and the effective rate on interest rates has risen in recent months.”
Chief executive officer of SPF Private Clients, Mark Harris, said: “This time, the vote split was 6-3 with three members in favor of a quarter to 4% increase compared to two members who voted for the increase at the meeting at the previous meeting.
“Despite the rate cut, borrowers still have to deal with the rising trend of house prices, with a number of lenders raising rates on their two- and five-year fixes. Mortgages are more expensive than last month, so affordability concerns are still there. Independent advice is more important than ever, as the price of the product is confirmed as soon as possible to see if the product is available before the review. At that time.”
John Phillips, chief executive of Just Mortgages and Spicerhaart, said: “The decision to leave the base rate unchanged was widely bought, as better-than-expected inflation data helped negate the need for the central bank to pull the trigger on any rate hikes.”
“For once, I think we all appreciate the bank’s patient, cautious approach as it monitors the impact of the Middle East conflict – which by all accounts, the UK has weathered well so far. Even as oil prices rebound following the collapse of peace talks.”
RAW Capital Partners chief executive Ben Nichols said: “While the strikes in the Strait of Hormuz have added to the upward pressure on inflation and volatile oil prices, the annual rate of inflation has been lower than expected in recent months.
“But there are still doubts about how long we can stay in this holding pattern. Many economists expect interest rates to rise later in the year. The rate of that rise will be determined by several key factors, in particular: how the conflict in the Middle East unfolds and what this means for oil prices, and how the market reacts to the policies of the new Andy Burnham government, including the Autumn budget.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said: “The hold of 3.75% was expected.
“In the property market, the reading is that house prices were already over before the announcement – several major lenders raised rates last week – so today would not be a trigger for further movement, but the tone of the Monetary Policy Report could keep upward pressure on prices unchanged in the autumn.”
