As predicted the Bank of England‘s Monetary Policy Committee (MPC) kept Bank Base Rate (BBR) unchanged at 5.25% in its May meeting today, despite two of the nine members advocating for a 0.25% cut. Despite a projected 0.4% GDP growth in Q1 2024, economic demand is expected to lag behind potential supply growth, leading to economic slack.
Meanwhile inflation indicators point to a decrease in services consumer price inflation, yet inflation remains high at 6.0% in March, however, CPI inflation is expected to approach the 2% target soon.
The MPC stresses the necessity of a tight monetary policy to bring inflation sustainably back to the 2% target, with a commitment to adjusting policy as per economic data.
Following the Bank’s latest comments, financial markets now expect rates to be cut to 5% by August and then trimmed to 4.75% in November or December. More rate cuts are predicted for 2025.
INDUSTRY REACTION
Nathan Emerson, PropertymarkNathan Emerson, Chief Executive of Propertymark, says: “As interest rates continue to remain the same in order to combat levels of inflation this country has not witnessed for decades, Propertymark is optimistic that buyers will continue to adapt to these new market conditions.
“Our own Housing Insight Report discovered that there has been a 4%t increase in the number of potential buyers registered, and an 8% increase in the number of available properties to rent, which shows that there are some reasons to remain optimistic that the housing market is recovering from shock economic factors from the last three years.”
Nick Leeming, Jackson-StopsNick Leeming, Chairman of Jackson-Stops, says: “The Bank of England has taken a ‘no news is good news’ approach to today’s decision, opting to hold firm for another six weeks. While no change was widely assumed, the expectation is that June’s meeting will finally break the base rate deadlock and initiate a rate cut.
“The Bank of England’s hawkish approach may not be headline grabbing, but at least it isn’t a distraction for buyers or sellers who want to press on with their sales and searches. While everyone in need of a mortgage would prefer rates to fall significantly, interest rates of around 5% are not high by historic standards.
“It’s important to keep in mind that, while the past 18 months have been a time of economic headwinds, the exceedingly low rates that became the norm in the 2010s were the exception and not the rule.
“A pivot towards lower rates in June, even if only minor, would help to ease affordability constraints at the lower end of the housing market and help to ensure chains don’t break down once sales have been agreed.
“For now, today’s ‘hold’ should help to maintain the fragile momentum we’ve seen building in the housing market recently. Across the Jackson-Stops network in April we have seen a year-on-year uptick in viewings, new instructions and new buyer enquiries, which bodes well for a busier second half of the year.”
Tom Bill, Knight FrankTom Bill, head of UK residential research at Knight Frank, says: “UK housing market activity has improved this spring but there is still a sense of hesitancy among buyers and sellers as they wait for the first rate cut in four years.
“Once that moves onto the short-term horizon, mortgage rates should edge lower and demand will improve. In the meantime, there is downwards pressure on house prices as mortgage costs creep higher, supply rises and a wave of homeowners roll off sub-2% mortgages.
“We expect UK prices to rise by 3% this year as services inflation gradually comes under control and borrowing becomes slightly cheaper in the second half of the year.”
Kevin Shaw, LRGKevin Shaw, National Sales Managing Director, Leaders Romans Group, says: “Maintaining the current base rate is a missed opportunity to stimulate economic activity. With inflation rising more slowly, the persistently high rates may unnecessarily constrain the economy— akin to wearing a “hair shirt” longer than necessary.
“This could adversely affect market sentiment, which is much more positive than a year ago. Furthermore high mortgage rates will exacerbate affordability issues for those getting onto the property ladder or renewing fixed-rate mortgages. A reduction in rates would have supported economic growth, and hesitancy to lower them might hinder the recovery in the housing market.
“Despite this, I would advise prospective homeowners or those considering a move to explore their options actively. With rates steady, house prices may start to move up, with an anticipated increase of around 20% over the next four years. Buyers should weigh the potential extra cost of purchasing a home over the next four years against the interest they would pay at the current rates.”
KNOCK-ON-EFFECT
David Rees, Research Analyst at Chestertons, says: “With falling inflation behind schedule, the expected timing of the first rate cut of 2024 has slipped to September. The prospect of fewer rate cuts in 2024 has had a knock-on-effect on mortgage rates, which have risen as a result. Whilst this raises the cost of borrowing, we have not seen a discernible impact on demand in London, with sales up 27% in April from the same period last year
Amy Reynolds, Antony RobertsAmy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “It is not surprising that the Bank of England held rates again at 5.25 per cent.
“If the inflation target is hit, we could see a rate reduction next month, which will stimulate borrowing if lenders also reflect this in lower mortgage rates at circa 4 per cent.
“In an election year, the government will be very keen to be on track with its inflation forecast, as any positivity helps consumer confidence and the property market. The market relies on confidence; stable interest rates mean a stable, albeit relatively dull, market.
“A rate reduction as soon as possible will be pivotal in stimulating activity in the property market.”
Jeremy LeafJeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “The Bank had some tough choices to make – on the one hand it can see inflationary pressures easing with the headline figure now at its lowest for two years but on the other, wage growth remains stubbornly high.
“As far as the housing market is concerned, we are finding borrowers increasingly concerned at the uptick in mortgage rates and the delay in what most people expect is a cut in base rate sooner or later.
“The comments and voting pattern around the decision are sometimes more interesting than the decision itself and clearly the direction of travel for rates is downwards when it is judged the right time to do so. The chances of even a small reduction resulting in runaway property prices or substantial rise in activity are slim, bearing in mind recent fairly flat activity.”
PUSH THE BUTTON
Jason Tebb, OnTheMarketJason Tebb, President of OnTheMarket, says: “With the sixth hold in base rate in as many meetings and inflation increasingly under control, buyers and sellers will be wondering when the Monetary Policy Committee is going to push the button and start cutting rates.
“As the Spring housing market kicks into gear, a rate cut would be extremely timely, boosting confidence, activity and transactions, which are all so important not just for the housing market but the wider economy.
“The increase in activity and interest seen by agents so far this year suggests the worst of the nervousness about the market is behind us. With buyers and sellers keen to get on with their moves after a period of sitting on their hands waiting for mortgage rates to improve, a rate reduction would provide the further encouragement they need.”
Matt Smith, Rightmove’s Mortgage Expert, says: “After a few weeks of mortgage rate increases, we’ve seen early signs that this current run of rate increases has peaked and we’d expect that average mortgage rates will begin to trickle down again soon.
“Inflation still seems to be heading in the right direction, a position that the Bank has highlighted in its decision today, with a view that it will fall below the 2% target in the coming months.
“The market is still assuming that the first Base Rate cut will happen in the Summer, and today’s decision is unlikely to change that view. All eyes now turn to the publication of April’s inflation data, which is the next key milestone and is likely to determine the immediate direction of mortgage rates in the UK.”
STABILITY
Robin Rathore, Bamboo AuctionsRobin Rathore, Chief Executive, Bamboo Auctions, says: “While holding the base rate provides stability to the wider economic environment, the sector remains fragile; fall through rates are high and news of mortgage rate increases are not giving any comfort to buyers or sellers.
“We’re seeing more activity in the market than we were 12 months ago, and this is partly down to rising payments as mortgage terms come to an end pushing many to sell.
“Sensible pricing remains the key determinant for vendors who are looking to sell quickly. We’ve also seen a 30% increase in the number of sellers listing for sale by online auction through our agent partners, as sellers desperately seek more speed and certainty in their transaction.”
Joe Pepper, PEXA UK Chief Executive Officer, says: “A decision to hold the interest rate is no real surprise, but a disappointment nonetheless for borrowers hoping to see it slashed. Inflation, though dropping ever so slightly, is clearly still top of mind for the MPC, leading us all to await a first cut in either June or August.
“It marks another blow for the housing market, which is seeing reduced activity as potential buyers await a reprieve in costs and remortgagers understandably wait for lower rates.
“As such, demand is building, and we must use this time to prepare to deal with the surge when rates do eventually drop.
“Lenders and conveyancers just want to provide the best service, but they still have to rely on antiquated infrastructure. When the surge in demand does inevitably come, they’ll be forced to put their foot on the accelerator with the handbrake still on.
“Widespread digital transformation is the only thing that can address the current inefficiencies in the system, radically speed the process up and free up conveyancers so that the system can support buyers when they take advantage of falling rates.”
Sam Jordan, Search AcumenSam Jordan from Search Acumen, says: ““Today’s announcement reinforces that talk of turning a corner may have been premature. As we have seen over recent weeks, despite falling inflation and a stable base rate, major banks are still increasing the cost of borrowing.
“This is based on the belief that rate cuts from the Bank of England may now be further away and slower than initially expected at the start of the year.
“Should the economy continue to follow its current course, it will eventually support growth and improve investor confidence.
“However, this year will continue to be challenging for borrowers and there will be a longer lag before improvements in the macro-economic landscape filter through into the real-world experiences of homeowners and real estate investors.”
NOT ENOUGH CONFIDENCE
Chris Scicluna, Daiwa Capital Markets EuropeChris Scicluna, Head of Research at Daiwa Capital Markets Europe, says: “While the Bank of England is moving closer to a rate cut, it doesn’t yet have quite enough confidence in the outlook to act.
“Recent economic data have been encouraging and the MPC’s updated projections suggest that the fight against persistent price pressures is close to being won. Indeed, in normal circumstances, its inflation forecast would have prompted a rate cut today.
“But while they are moving in the right direction, wage growth and services inflation remain too high for the comfort of most members of the MPC.
“There also remains some lingering uncertainty about the impact of geopolitical developments.
“So, while it is well aware that its policy stance is restrictive, the Bank of England is not yet willing to ease its foot off the economy’s brakes.
“Nevertheless, the Governor recognises that the risks of inflation persistence in the UK are lower than in the US, and so the BoE will be ready to cut rates before the Fed. Indeed, the MPC’s updated projections suggest that the evidence required should be available in time to bring a first rate cut next month.”
Anthony Codling, RBC Capital Markets Equity Research Managing Director, says: “This month two MPC members voted for a rate cut (up from one the month before), whilst seven voted to hold at 5.25%, and for the second time in a row no member voted for an increase. Bank Rate may be on hold, but the scales are slowly starting to tip in favour of a cut. We are not there yet, but we are on the way and this should bring comfort to those looking to remortgage in the second half of 2024 and UK housebuilders will also benefit from lower mortgage rates which aid housing affordability.”
BROKER REACTION
Rob Clifford, StonebridgeRob Clifford, Chief Executive of Stonebridge, says: “With swaps increasing in recent weeks, the recent decision by the US Federal Reserve to hold its rate amidst concern about its inflation not coming down, and the next set of ONS inflation figures not due to be published for another couple of weeks, it was highly unlikely the Bank would announce any kind of rate cut, and so has been the case.
“We have also seen the mood shift with regards to the timetable for a cut to Bank Base Rate, with suggestions that we may now be waiting until the autumn before the Bank feels empowered to act.
“Where once it appeared somewhat nailed-on that the Bank would act in June, that sentiment has shifted, and therefore mortgage pricing is not likely to benefit from any reduction in the base rate possibly until September and November.
“With several large mainstream lenders moving their mortgage pricing upwards to replicate the move in swaps, this is likely to be the position, at least in the short term and certainly up until the next MPC meeting in June.
“While we wait for next month’s meeting, advisers should continue to inform borrowers that the best time to act is now, as it never pays to base personal mortgage decisions on what might or might not happen in the future; they can of course only advise on what is available in the present.”
SITTING ON ITS HANDS
Ben Thompson, Deputy Chief Executive, Mortgage Advice Bureau, says: “With the Bank of England sitting on its hands again, borrowers will have to wait that bit longer for the first base rate cut since 2020. Inflation falling slower than expected has put the brakes on, with policymakers waiting for signs that the cost of living crisis has been shaken off – and there may be some way to go yet.
“Swap rates have been choppy on BofE expectations, and it’s why some lenders have repriced in recent weeks. That said, March saw an 18-month high in mortgage approvals, with new buyers pressing ahead with their plans. With this in mind, it’s right to not wait for the Bank of England to make the first move. Getting mortgage ready, speaking to a broker, and seeing what deals are out there are the right moves to make if you are planning a summer purchase.”
Henry Knight, Springtide CapitalHenry Knight, Managing Director of mortgage broker Springtide Capital, says: “Despite calls for the Bank of England to cut interest rates today, it was highly unlikely. The current market remains too unpredictable due to a number of outside factors, such as inflation.
“Although inflation levels have dropped compared to last year, the Bank still has some way to go to achieve the 2% target rate.
“Whilst this isn’t the news that house hunters had hoped for, we are optimistic that a rate cut is still on the cards later this year.”
Mark Harris, SPF Private ClientsMark Harris, chief executive of mortgage broker SPF Private Clients, says: “The Bank was always likely to hold rates this month, and we expect June’s meeting to have a similar outcome.
“That said, by that point there should have been two further lots of improving inflation data, reinforcing the argument for cutting rates by the end of the summer.
“It is time for the rate setters to be bold and start reducing rates, which will increase borrower confidence and give the housing market a welcome boost.
“At the last meeting, eight members of the MPC voted to hold rates, with one voting for a quarter-point reduction. This time the vote was more split, with seven voting for a hold and two for a quarter-point cut.
“As far as mortgage pricing is concerned, what the Bank of England does with base rate is only part of the picture. If Swap rates, which underpin the pricing of fixed-rate mortgages, edge further downwards, then lenders will introduce cheaper mortgage rates, increasing the choice for borrowers at more palatable pricing. With Barclays and Lloyds already announcing reductions this week, hopefully it is only a matter of time before other lenders follow suit.”
Simon Gammon, Knight Frank FinanceSimon Gammon, Managing Partner, Knight Frank Finance, says: “Today’s decision plus the accompanying meeting minutes will hopefully add some stability to mortgage rates.
“Two of the nine members of the Monetary Policy Committee voted to cut the base rate and the forecasts for inflation look a little more benign.
“We’ve seen quite a sharp repricing of mortgage rates during the past three weeks and borrowers are understandably worried. That repricing has been driven in large part by fears that the BoE and other European central banks will be constrained by the Federal Reserve, despite the fact that domestic inflation is easing.
“But Sweden’s Riksbank on Wednesday pushed on with its first cut in eight years, taking the view that falling inflation and rising unemployment gave it enough leeway to begin loosening policy.
“When you read today’s minutes, it looks like the Bank of England won’t be too far behind, though of course we’ve been surprised before. Nevertheless, this report should reinforce the current view that the first cut will arrive this summer and there will be at least another before the year is out.
“Unless we see some big surprises in the inflation data in the next few months, that should mean mortgage rates are close to peaking and should glide down slowly through the rest of the year.”
Kevin Roberts, Legal & General FinanceKevin Roberts, Managing Director, Legal & General Mortgage Services, says: “There is no doubt that the market is not only busier, but also in a more robust position, than it was last year.
“The question on everyone’s lips is now ‘when’ and not ‘if’ we’ll see that reduction in the base rate. Those buying and remortgaging have enjoyed the competition on pricing that we’ve seen so far in 2024, with average rates comfortably below the figures we saw last summer.
“We are seeing strong demand across the board but particularly from first-time buyers, who are being helped by wage inflation and house price stability, as well as wider inflation edging down slightly.
“Nonetheless, the market remains slightly sensitive to pricing changes, and some buyers are holding out for further rate drops before taking the next step in their homebuying journey.
“Whatever your next move, we always recommend consulting a professional mortgage adviser before committing. Advisers are trained to navigate the complexities of the market, and are poised to offer tailored support throughout what’s likely to be the largest purchase of your life.”
Ben Allkins, Just MortgagesBen Allkins, Head of Mortgages and Protection at Just Mortgages, says: “It’s hard not to see today’s decision as a missed opportunity, especially as inflation continues to head in the right direction.
“I know the central bank has many factors to consider and often follows the lead of the Fed and ECB, but further delays keep the economy fighting for life and risk derailing all the positive momentum we have seen in the mortgage market so far this year.
“Just recently, we have seen the impact of the changing expectations and a higher for longer mentality, with swap rates rising and lenders following suit across their product ranges.
“Even so, we’ve been encouraged by the high demand we have seen for valuations and appointments, demonstrating the growing confidence among clients.
“However, further delays make the job much harder for brokers to nurture and sustain this confidence. Thankfully, they are well placed to help clients navigate the market and identify the opportunities still available to make their plans a reality. It’s up to brokers to keep sharing this message and offering that five-star service.
“We have to hope that the Bank of England finally finds the confidence to pull the trigger on a base rate cut sooner rather than later.”
TURNING POINT
Karen Noye, QuilterKaren Noye, Mortgage Expert at Quilter, says: “We have been anticipating a turning point in the mortgage and housing market as we approach the summer months, and though we are yet to see an interest rate cut, the additional vote in favour of one at the Bank of England’s latest monetary policy meeting offers a glimmer of hope that rate cuts are edging closer.
“This could have a positive impact on mortgage rates in the nearer term given lenders price in rate cuts ahead of time and it still looks likely one could materialise in the coming months assuming the data continues heading in the right direction.
“A fall in mortgage rates would present a more favourable borrowing market for those buyers who have been sitting patiently in ‘wait and see’ mode which could help buoy the market. However, it is worth noting that we are likely to see a gradual fall in rates as opposed to a sudden drop even if the BoE does opt to cut rates at future MPC meetings.
EXTREME PRESSURE
Peter Stokes, Director of Mortgages at Davidson Deem, says: “A shift from 1 to 2 votes for a cut does not sound much, but it means a lot. If inflation does fall significantly next month, the Bank of England are going to come under extreme pressure to cut base rate, and with only a sway of a further three votes on the committee needed, this could happen. We wait with bated breath for those inflation figures!”
Elliott Benson, Owner at Sett Mortgages, says: “Today’s hold is dissapointing however it is looking like the end is near for rate rises and we should see a reduction on the horizon, potentially in June. This would get us back on track with fixed rate reductions and bring some much needed positivity back!”
Samuel Mather-Holgate, Independent Financial Advisor at Mather and Murray Financial, says: “With inflation still above target, there’s no prospect of a rate cut any time soon. The Bank of England is backwards looking, so won’t think about reducing rates until inflation is below target. This means we shouln’t be expectin cheaper mortgage rates unti the autumn. Bad news for the economy, busineses and households.”
Riz Malik, Director at R3 Mortgages, says: “June’s base rate decision will likely be a dress rehearsal for cut in August especially given the voting split. A cut of any size will inject confidence in the UK housing market as it highlights that the worst may be over.”
