The Bank of England left interest rates unchanged at 3.75% yesterday, offering a further boost to housing market confidence as lenders continue to reintroduce mortgage products priced below 4%.
The Monetary Policy Committee voted by seven votes to two to keep Bank Rate on hold, despite inflation remaining above the Bank’s 2% target.
The decision comes as inflation held steady at 2.8% in May, below both market expectations and the Bank of England’s own forecasts. Lower food and energy costs helped offset increases in transport and fuel prices, easing immediate pressure for further rate rises.
For the housing market, the latest decision provides additional stability at a time when affordability remains a key challenge for buyers and movers.
BETTER MORTGAGE RATES
Recent weeks have seen a growing number of lenders launch sub-4% fixed-rate mortgages, helping to improve affordability and support buyer confidence after a prolonged period of higher borrowing costs.
The Bank’s decision also reflects a more balanced outlook for inflation following a de-escalation of tensions in the Middle East. Falling oil prices have eased concerns that disruption to global energy supplies would trigger another inflationary shock and potentially force rates higher.
Bank of England Governor Andrew Bailey (main picture, inset) said: “Oil prices have fallen in recent days, and that’s encouraging.
“Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline.
“The Bank’s job is to make sure that doesn’t turn into sustained inflation above our 2% target.”
INFLATION WORRIES
Frances Haque, Chief Economist at Santander UK, said: “The Monetary Policy Committee had some leeway to hold Bank Rate today at 3.75% as they wait and see how the second-round effects from the conflict in the Middle East filter through the UK economy.
“Although the inflation data released on Wednesday held steady at 2.8%, the longer-term impact of the conflict and the closure of the Strait of Hormuz has yet to fully unwind, and will inevitably push up inflation as we move through the rest of the year.
“Looking forward, while both global and domestic uncertainty means the outlook remains challenging both for the economy and the housing market, the good news is the risk of a hike in Bank Rate in 2026 has been much reduced.
“The mortgage market has been pricing down in recent weeks, with a growing number of sub-4% fixed-rate products entering the market, which should help improve affordability and reinstate confidence in borrowers looking to move home this year.”
The latest rate decision is likely to be welcomed across the property sector, with agents, lenders and housebuilders all keen to see greater stability in borrowing costs after several years of volatility.
While affordability pressures remain, a sustained period of lower mortgage pricing could provide further support for housing market activity during the second half of the year.
INDUSTRY REACTION
Nathan Emerson, CEO at Propertymark, says: “With inflation still above the Bank of England’s 2% 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, today’s 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.”
PRESSURE OFF
Jason Tebb, President of OnTheMarket, says: “As was widely expected, the Bank of England has voted to hold interest rates at 3.75% for another month.
“With inflation holding firm at 2.8% in the 12 months to May, this took a bit of pressure off the rate setters who chose to continue with their ‘wait and see’ approach, although two members voted for a quarter-point increase this time around.
“Although inflation is still above the Bank’s 2% target, and is expected to edge higher on the back of inflationary pressures created by the Middle East conflict before it comes down, the Bank has to balance that risk with avoiding squeezing businesses and consumers who have already been hit by a rise in energy prices.
“While interest rate cuts have been hugely important in boosting buyer and seller confidence over the past couple of years, a further hold suggests a continued steadiness and stability which in these uncertain times is no less welcome.
“With lenders continuing to ease mortgage rates on the back of lower Swap rates, there is cause for optimism among borrowers.
“As ever, many people simply need to move – especially if they have repeatedly put on hold due to pre-Budget speculation, and geopolitical concerns – and these are proceeding with their transactions.”
RATE CHANGES ARE COMING
John Phillips, CEO of Spicerhaart and Just Mortgages, says: “I think even with the surprise news on inflation yesterday, this was always the most likely outcome.
“We shouldn’t be disappointed though, particularly with more hawkish members of the MPC calling for hikes.
“That threat does appear to be dissipating, but it’s certainly not gone for good. Even with the signing of an initial peace deal that intends to end the war, the impact of the Middle East conflict is still likely to feed through in the coming months – members will be conscious of this.
“I’d argue though that we also need to consider economic growth which wouldn’t be helped by any future increases in rates.
“Even with this backdrop, we have been seeing positive movements in the mortgage market and some increasing competition. The overriding message that brokers need to be sharing with clients is that there is still plenty of money out there and lenders that are willing to lend.
“Rate changes are coming with tweaks to products and criteria as lenders hit the halfway point of the year and look ahead to their end of year targets.
“Depending on where they are, lenders are having to be a bit more brave and bold in their appetite to risk and in their pricing to make sure they end the year where they want to be. This is good news for potential borrowers and all the more reason why they should rely on quality advice.”
STEADIER FOOTING
Kevin Shaw, National Sales Managing Director, LRG, says: “The Bank of England’s decision to hold rates at 3.75% is better news than we anticipated even a week ago.
“After a year in which the economic mood music has lurched from anticipating numerous rate cuts to as many rises, this stability is extremely welcome.
“Inflation is still 0.8% above the Bank’s 2% target and there is likely to be a lag in its reduction as a result of recent global instability.
“But the picture is materially better than it looked just a few weeks ago. If the ceasefire in the Middle East holds and oil prices continue to ease, that should feed gradually into confidence, costs and consumer behaviour.
“In the housing market, the sentiment is important because buyers do not look at house prices alone – they look at mortgage affordability, energy costs, the many other costs that come with buying a new property, and of course the future direction of the market.
“And the mortgage market has already started to respond: swap rates have moved down and we are edging closer to seeing more mortgage products beginning with a three.”
NEEDS-DRIVEN MARKET
Nick Leeming, Chairman of Jackson-Stops, says: “The Bank of England’s decision to hold interest rates will be welcomed by many buyers and homeowners who have spent recent months navigating an increasingly uncertain economic landscape.
“While borrowing costs remain significantly higher than the levels seen in recent years, yesterday’s decision provides a degree of consistency at a time when households and businesses continue to face wider economic pressures.
“Against a backdrop of ongoing geopolitical tensions and global market uncertainty, maintaining rates gives buyers greater confidence to plan and make informed decisions without the prospect of immediate further increases.
“For the housing market, stability is often just as important as affordability. Many buyers have already adjusted their expectations to the current interest rate environment, and a period of policy consistency allows confidence to build gradually across the market.
“While transaction levels may remain measured in the months ahead, holding rates should help avoid additional pressure on affordability and support continued activity among buyers and sellers.
“The market remains highly needs-driven, with people continuing to move for work, family and lifestyle reasons, and today’s decision provides a more predictable backdrop against which those decisions can be made.”
STABILITY IS KEY
Iain McKenzie, CEO of The Guild of Property Professionals, says: “The decision by the Monetary Policy Committee to hold Bank Rate at 3.75% was widely anticipated and reflects the careful balancing act facing policymakers.
“While inflation has remained higher than the Bank’s 2% target at 2.8%, it is encouraging that price growth did not accelerate between April and May.
“For the housing market, stability is key. Buyers and sellers have been navigating elevated borrowing costs and a more cautious economic backdrop, yet activity has remained resilient. Needs-based movers continue to support the market, but there is no doubt that some buyers have remained on the sidelines while they wait for greater certainty.
“With signs that oil prices are starting to ease following improved sentiment around the Middle East situation, there is hope that inflationary pressures will start to moderate.
“As the economic outlook improves and mortgage lenders continue to compete on rates, we could see confidence return and more buyers to re-enter the market.
“However, realistic pricing remains crucial, with buyers currently benefiting from the highest level of choice in over a decade.”
BALANCING ACT
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “In making this decision, the Bank must weigh up whether to potentially compromise a slowing economy, including the jobs and housing market, in order to reduce the chances of inflation getting out of hand.
“We know how important the housing market is to the overall strength of the economy, bearing in mind the knock-on effects on so many other businesses. An increase in rates now would further reduce confidence and activity.
“With CPI inflation holding steady at present, the pressure is off a little from the Bank for an early increase, even if it means one will come a little later in the year.”
DEALS WILL GET BETTER
Simon Gammon, Managing Partner at Knight Frank Finance, says: “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 2-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.”
NO SURPRISE
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “It was expected that base rate would be held at 3.75% for another month, with the Bank of England treading carefully despite inflationary pressures.
“This decision will improve the general mood of buyers, which is still very cautious. People are paying close attention to the situation in the Middle East and its effect on energy prices – there are recent signs of improvement in outlook and activity, but it still feels hesitant.”
RESILIENT MARKET
James Stevenson, Managing Director of Sales for Foxtons, says: “This decision was widely expected and reflects continued caution from the Bank of England as it balances the need to support economic growth against lingering inflationary pressures.
“Whilst rates may not have fallen at the pace many anticipated, the UK property market has remained remarkably resilient, with values holding up well compared to this time last year.
“We’re seeing a market of committed buyers. The people getting in touch are serious, well-researched and ready to move. For anyone waiting for the perfect rate climate, the wait carries its own risk.
“Even if you could time the bottom, lower rates bring buyers back all at once, and that competition is what costs you the home you want.
“For sellers trading up, a softer market is your friend. If prices ease, the larger home you’re buying tends to fall by more in pounds than the one you’re selling, so the gap you actually pay to move up shrinks. That gap is what matters, not the headline figure on either side.”
CONSISTENCY AND PREDICTABILITY
Verona Frankish, CEO of Yopa, says: “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.”
WIDELY ANTICIPATED
Chris Hodgkinson, Managing Director of House Buyer Bureau, says: “Yesterday’s decision is unlikely to come as a disappointment given that a hold was already widely anticipated, but neither will it provide much of a catalyst for those waiting on the sidelines.
“The housing market has continued to function despite elevated borrowing costs, however many buyers and sellers remain highly sensitive to affordability and are looking for stronger signals that mortgage rates will ease further over the months ahead.
“For now, the Bank of England has chosen to prioritise stability and that’s understandable given the wider economic backdrop. But until we see a more meaningful reduction in borrowing costs, market activity is likely to remain driven by necessity rather than confidence.”
CAUTION PERSISTS
Nigel Bishop of buying agency Recoco Property Search says: “House hunters remain cautious amid the UK’s volatile economy and with rates remaining at 3.75%, the market won’t be seeing a spike in buyer activity any time soon.
“Particularly those who aren’t in a rush to move, will rather wait until the market has stabilised or rates have come down.”
