The housing market has welcomed the Bank of England’s decision to hold the base rate at 3.75% today, saying it will help bring stability to the housing market.
The Bank’s Monetary Policy Committee (MPC) voted 7/2 this morning to keep the key rate at its current level. Two prominent MPC members voted to raise the base rate to 4%.
The decision to freeze the base rate came as the MPC decided it was necessary to keep inflation under control.
CPI inflation is now 2.8%, with the Bank aiming for 2%.
The Bank said: “CPI inflation has eased to 2.8% since the last meeting, although it is expected to increase later this year as the effects of higher energy prices continue to pass.” The risk of material effects in the second round on prices and wage stabilization, on which the policy should depend, is greater if electricity prices rise and continue for a long time.
“But the labor market continues to be weak, and signs of a recession could contain inflationary pressures. Interest rates facing households and businesses remain higher than before the conflict, which will act to moderate inflation over time.”
L&C Mortgages associate director David Hollingworth said: “Further rate cuts will give borrowers more hope that interest rate rises may not have to be as bad as first feared.” Many borrowers were choosing to take the security of a fixed amount but in the last few months it has increased the number of gamblers with a tracker rate so that it does not just offer the lowest amount initially.
“Of course, there is no guarantee and the markets are still pricing in the possibility of interest rate increases, so borrowers should consider how they can cope with rising payments.”
MT Finance founder Joshua Elash said: “It is encouraging that the MPC is holding the base rate. This was the right thing to do. Raising it at this time would have put a lot of strain on both lenders and borrowers.
“With the peace framework between Iran and the US, we should see some stability return to the real estate market, as well as a reduction in disputes over energy costs.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said: “Expected to keep the base rate at 3.75% for another month, the Bank of England treaded carefully despite inflationary pressures.
“This decision will improve the general attitude of consumers, still very cautious. People are paying close attention to the situation in the Middle East and its impact on electricity prices – there are recent signs of improvement in outlook and performance, but we still feel hesitant.”
LRG national sales director Kevin Shaw said: “The Bank of England’s decision to hold rates at 3.75% is better news than we expected even last week.
But the impact of the decision has been somewhat muted in the buy-to-let market.
Fleet Mortgages chief commercial officer Steve Cox said: “In the buy-to-let market, the encouraging news is that mortgage rates are generally priced out of short-term expectations about the Bank’s base rate though.
“In recent weeks, calm financial markets and growing confidence that tensions in the Middle East may not continue have helped to improve funding conditions, allowing lenders across the market, including Fleet, to reduce rates. While exchange rates will continue to react to economic data and global events, advisors and client owners can take confidence in the fact that product pricing has been moving in the right direction despite continued uncertainty.”
