Bank of England rate hold brings stability to housing market

The Bank of England has held interest rates at 3.75% despite a volatile market and ongoing economic uncertainty.

The Monetary Policy Committee (MPC) voted by a majority of 7-2 to keep interest rates unchanged.

Two members voted to increase Bank Rate by 0.25 percentage points, to 4%.

Act to reduce inflation over time

The MPC said of its decision: “The impact of the energy shock on the UK economy remains uncertain.

“CPI inflation has fallen to 2.8% since the previous meeting, although it is expected to rise later this year as the effects of higher energy prices continue to pass through. The risk of material second-round effects in price and wage-setting, against which policy needs to lean, is greater the longer higher energy prices persist.

“But the labour market continues to loosen, and signs of a weakening economy could contain inflationary pressures. Interest rates faced by households and businesses remain higher than prior to the conflict, which will act to reduce inflation over time.”

Industry reaction

Nathan Emerson, CEO at Propertymark, said: “With inflation still above the Bank of England’s 2 per cent target, a decision to hold interest rates at their current level reflects a cautious and balanced approach. Policymakers will be keen to ensure inflationary pressures continue to ease before making any significant changes to borrowing costs.

“For homeowners, buyers and sellers, the decision provides a degree of stability and certainty. While borrowing remains relatively expensive compared with recent years, holding rates steady avoids adding further pressure to household budgets and gives the housing market an opportunity to adjust.

“Many families are still recovering from the higher cost of living and elevated energy bills experienced over the past few years. If inflation continues to move in the right direction, there is growing hope that confidence will strengthen, helping to support increased activity across the property market and making home ownership more achievable for many.”

Mortgage lenders to cut rates

Simon Gammon, managing partner at Knight Frank Finance, said: “The Bank of England’s decision to hold rates, combined with weak pay growth and lower-than-expected inflation, will pave the way for mortgage lenders to cut rates over the coming weeks.

“The repricing began earlier this week when Nationwide reduced its headline two-year fixed rate to 4.29%, which is now the cheapest fixed rate on the high street.

“Many lenders have fallen short of their lending targets so far this year and will be looking to win a greater share of business during the second half.

“While we are unlikely to see a dramatic fall in mortgage rates, borrowers should benefit from a gradual improvement in deals over the summer, which will help support housing market activity later in the year.”

Provides stability

Verona Frankish, CEO of Yopa: “The decision to hold the base rate comes as little surprise and, importantly, it provides a further period of stability for homebuyers and sellers alike.

“The property market has demonstrated remarkable resilience so far this year, with buyers continuing to transact despite higher borrowing costs than many had become accustomed to prior to 2022.

“Whilst a rate cut would undoubtedly have provided an additional boost to sentiment, consistency and predictability remain valuable in their own right.

“With inflationary pressures yet to disappear entirely, a measured approach from the Bank of England is understandable and we expect the market to maintain its current level of momentum as a result.”

Rate hold largely expected by market

Frances McDonald, director of Savills residential research, said: “The decisive (7-2) Bank base rate hold was largely expected by markets, particularly as May inflation figures remained steady, though inflation is expected to rise later this year as the effects of higher energy prices feed through.

“Mortgage rates have continued to gradually decline since April, but they remain elevated compared to the start of the year. News of the US-Iran Memorandum of Understanding provides cause for cautious optimism, but the aftermath of the conflict is likely to be felt for some time.

“Our latest forecasts reflect this ongoing uncertainty and constrained buyer budgets. In the mainstream housing market, we are forecasting price falls of -2.0% over this year, with the most significant falls in London and the South East.

“The prime markets, though less exposed to the interest rate environment, are more exposed to domestic political uncertainty and so we are also forecasting a softening of values over the course of the year, with a stronger recovery pushed out until 2028.”