Bank of England holds base rate at 5.25%

Published on 19th December 2023, 4:28am

The Bank of England has decided to hold the base interest rate at 5.25% for the third consecutive review. The last review was November 2nd.

The Bank’s Monetary Policy Committee (MPC) meets eight times a year to set interest rates. Its nine members vote on whether to increase, reduce or hold interest rates. At the last decision, six of them voted for no change and three voted for an interest rate hike. The same happened this time around too.

SOME WAY TO GO

The decision to hold rates follows on from the US Federal Reserve holding interest rates yesterday with financial markets believing it’s likely the US will begin cutting interest rates next year.

The Royal Institution of Chartered Surveyors Residential Market Report revealed this morning that cheaper mortgages are starting to have a positive impact on the housing market with declines in national house prices slowing and sales expectations for the year ahead the most positive since January 2022.

Downwards pressure on mortgage rates is growing by the day.”

Tom Bill, Head of UK Residential Research at Knight Frank, says: “Downwards pressure on mortgage rates is growing by the day.

“Despite holding at 5.25% and the Bank of England’s warnings that rates may stay higher for longer, weaker-than-expected wage growth and GDP numbers this week have brought forward expectations for a cut.

“The five-year swap rate has been trading below 4% today for the first time since April, pointing to a further trimming of mortgage rates. Improving sentiment means transaction volumes in the UK housing market should be stronger over the next six months than the last six, provided a general election is not called in the first half of 2024.”

Interest rate stability is exciting.”

Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, adds: “Interest rate stability is exciting, helping re-build confidence for home buyers when it comes to taking on debt and improving activity in our offices.

“Of course, we would prefer to see a reduction in these historically high rates, but this is unlikely to happen anytime soon.

“Continuing falls in lender rates and inflation are the best we can hope for at the moment, which are contributing, along with healthy employment figures, to a more optimistic tone as we head into a new year!”

Matt Thompson, head of sales at Chestertons, adds: “With interest rates having remained at 5.25% over the past months, buyers have been more comfortable to move forward with their property search.

“Today’s news that rates remain at this level – and economists predicting a possible reduction in 2024 – provides a slightly more favourable market outlook.

“Indeed, this could see more house hunters deciding to enter the market over the next few months.”

CLEAR EVIDENCE

Guy Gittins, Chief Executive of Foxtons, says: “We’re now seeing clear evidence that the property market has weathered the storm of economic uncertainty this year and is now taking positive steps in the right direction.

“Since the Bank of England first decided to hold rates at 5.25%, mortgage approval numbers have increased, sellers have continued to return to the market and UK house prices have climbed consistently on a month to month basis.

“While hopes of a rate reduction were probably a tad optimistic this side of the Christmas period, a third consecutive decision to keep the base rate held will only add to this growing property market optimism.”

WIDELY EXPECTED

John Phillips, Chief Executive of Spicerhaart and Just Mortgages, adds: “Instead of a cut and an early Christmas present or a rise and becoming the Grinch that stole Christmas, the Bank of England went with the widely expected option of holding rates for the third time in a row.

“Even with a number of positive indicators, particularly cooling inflation, the bank is still maintaining its position of ‘higher for longer’ – although many are predicting a rate cut early next year.

“Nevertheless, another hold brings continuity and stability and provides an opportunity for lenders to reassess and reprice.

“It will no doubt add further ammo to the ongoing rate war among lenders – which is great news for borrowers and prospective buyers.

We mustn’t forget though that this will still be higher that what many clients perceive as ‘normal’, highlighting the real need for brokers to be proactive in educating clients on the realities of today’s market and what it means for them and individual situation.”

LONGER STRATEGY

Nick Leeming, Chairman of Jackson-Stops, adds: “The Bank of England has held firm with today’s decision, keeping a steady head and refraining from increasing rates, instead opting for a ‘higher for longer’ strategy to continue to drive down inflation.

“The steadier approach is welcomed by the market, avoiding spikes in payments and giving consumers a clearer pathway to be able to plan accordingly.

This comes at a time where the holiday period will put consumer spending into the spotlight, where often affordability will be the lasting remark.

“Currently the market is not expecting a fall in rates for some time, with the Bank of England’s next few moves reliant on the UK economy continuing to avoid a recession.

“When it comes to property despite challenging headwinds, a resilient labour market and consistent demand has led to a market rebalancing rather than a fall. Positively, the wider property market is set to outperform forecasts from this time a year ago, proving its steadfast resilience once again, despite higher mortgage rates.”

SEE WHAT HAPPENS

Alex Lyle, Director of Richmond-based Antony Roberts, says: ‘Buyers relying on mortgages to fund their purchase have been waiting to see what happens with rates, as this has such an impact on affordability.

“Even those who don’t need to take out a mortgage will take note of general market trends, with interest rate movements being one of the biggest drivers behind buyer decision-making.

“Another rate hold will be viewed as another step in the right direction, fuelling hopes that longer-term stability on rates is on the way and that they might even start to come down in the not-so-distant future.

“This should increase confidence in those who have been anxious about committing to a property purchase, so is encouraging for the market as we move into a new year.”

HARSH MIX

Nathan Emerson, Chief Executive of Propertymark, says: “There is little denying this year has been difficult for many, with a harsh mix of high inflation and elevated interest rates to contend with.

“There is no shying away from the fact many households have struggled to get by each month. With rates remaining unchanged yet again, Propertymark is optimistic the peak of the turmoil has now hopefully passed but it will take a little time to see full momentum and confidence back within the housing market once again.

“It’s also important to highlight almost 1.4m households across the UK have fixed-rate mortgage deals that will come to an end over the coming twelve months, so the road to a fully robust housing market will be closely linked and we may see a few more bumps in the road before a full recovery.”

MORE GOOD NEWS

Matt Smith, Rightmove’s mortgage expert, says: “Today’s decision to hold the Base Rate as expected is some further good news to those planning a New Year move and looking to take out a mortgage soon.

“We typically see more people consider their moving plans after Christmas, and after 20 consecutive weeks of steady average mortgage rate falls, this is the most settled mortgage market we’ve seen for a while, giving confidence to those thinking of moving. However, rates do remain at elevated levels.

“The market opinion remains that Base Rate has reached its peak. The fact that swap rates – the underlying cost of mortgages to lenders – fell further after the latest UK GDP data was published yesterday, was another indicator that the markets were confident about how today’s announcement would play out.

“Many of the factors that contributed to the hold in September and November are continuing, and a flattened Base Rate, which could begin to fall in 2024, is looking increasingly likely.”

NO SURPRISE

Mark Harris, Chief Executive of mortgage broker SPF Private Clients, says: “It comes as no surprise that the Bank of England has held interest rates at 5.25% for the third consecutive meeting. Weak GDP figures has increased the possibility that the next move in rates will be downwards and that could come sooner than many predicted.

“We expect base rate to be heading towards 4% by the end of 2024, assuming inflation also continues to move towards its 2% target. This would necessitate around three or four interest rate cuts next year – which would be welcome news for borrowers who are struggling with affordability.

“Lenders continue to reduce their mortgage rates for both new purchases and those remortgaging, increasing the choice for borrowers at more palatable rates with 2 and 5-year fixes available from less than 4.3%. Lenders are keen to lend and will want to do more business next year as this one has been disappointing, which is likely to mean further rate reductions.”

But he warns: “Those coming up to remortgage in the next few months will still face a payment shock as we must all get used to a higher interest rate environment, but it won’t be as bad as it could have been.”

MORE EASING IN JANUARY

Hina Bhudia, partner at Knight Frank Finance, says: “The mortgage market is getting quiet as we approach the Christmas lull, but the Bank’s decision to hold at 5.25% paces the way for more easing in January.

“The lenders are locked in a battle for market share in a subdued market. They will return in January with fresh targets, eager to make headway.

“That said, we expect these mortgage rate cuts to be pretty small because the lenders’ margins are already thin.

“Mortgage rates will fall more meaningfully when the Bank of England begins cutting the base rate.

“If we see the cuts currently priced in by financial markets, we think borrowers will be able to access mortgage rates starting with a three by the end of the year.”

INFLATIONARY PRESSURES

Andy Sommerville, Director at Search Acumen, says: “Though progress has been made to fight the ongoing inflationary pressures the high cost of borrowing remains a barrier for homebuyers and real estate investors alike.

“This, coupled with affordability issues as prices remain high, especially for first-time buyers, means we are unlikely to see growth in either market.

“Despite this, steady rates and some stability can provide a sense of reliability in uncertain times. Compared to the consistent increases we have seen previously, this may be settling for some.”

And he adds: “Homeowners and investors will need to continue to be savvy with their choices, examining where and what asset classes are outperforming the market, being more strategic than ever to push against these economic headwinds.”

STABLE FOOTING

Adam Oldfield, Chief Revenue officer at Phoebus Software, says: “After a year of ups and downs it is good to end the year on a more stable footing. Although rates aren’t yet going down, the fact that they are not going up is a relief.

“Borrowers and potential purchasers can’t have failed to notice that overall mortgage rates are coming down. This may give a boost of confidence going into the new year when things, historically, start moving.

“Given that a large number of properties have come to market across the country in the last month, we could see a real flurry of activity in January.

“The only sticking point would be if the inflation figure next week shows an increase. The unexpected fall in GDP yesterday has certainly given economists pause for thought and as wages continue to increase it is hard to predict what will happen next.

“On a positive note swap rates are still coming down, which gives lenders more scope to ease the borrowing burden for those coming off fixed rates and those hoping to take up new mortgages.”

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