Thursday June 20, 2024

The Bank of England has maintained the existing interest rate for the seventh time in a row. UK interest rates have not moved since the Bank of England raised them to 5.25% last August. The decision to freeze rates again comes as inflation, which measures price rises over time, falls back to the 2% target, as revealed yesterday.

Alongside the interest rate decision, the Bank has just released its latest forecast estimating what will happen to inflation and the UK economy. The Bank of England governor believes that it is not yet the time to reduce interest rates. Markets are only fully pricing in a cut in September, but many economists had hoped that the Bank would make a move this month to cut rates. There is still a chance that rates could be reduced when the Bank’s Monetary Policy Committee meets in August.

Industry reaction has been varied. An estate agent from north London said that although a cut to the base rate would give some added impetus to the housing market following the uncertainty brought by the election announcement, no change was expected. They noted that while inflation is thankfully falling, pressures remain in wage growth and the services sector. They hope lenders will sense that a drop in the base rate is coming sooner rather than later and begin reducing their mortgage rates, which would certainly improve confidence.

A CEO of a property organisation commented that it is vital for the housing market to have further confidence regarding the long-term trajectory of inflation. This is a stance the Bank of England has remained very open about before any commitment is made to start reducing the base rate. They are keen to see rates reduced when circumstances allow and for this to then translate into competitive mortgage deals from lenders at the first opportunity. They noted much-needed progress since the start of the year regarding the housing market and stressed the importance of maintaining stability.

A regional sales director at a property company mentioned that property buyers have been waiting for interest rates to go down for months and will feel deflated after the Bank of England did not announce a rate cut despite inflation dropping to its 2% target. However, some buyers are proceeding with their purchases now, regardless of interest rates, as they expect any rate cut to trigger an uptake in buyer activity that will inevitably boost property prices. To avoid having to pay more for their property further down the line, these buyers act now as they predict the savings from current and future asking prices to be greater than those from lower interest rates.

The CEO of another property group said that in light of the Bank of England’s decision to keep interest rates unchanged, it’s clear that while inflationary pressure is easing, other factors influenced this choice. Although buyers and sellers will have to wait a little longer to see an interest rate cut, the property market continues to see steady recovery as buyer demand, transaction levels, and prices show growth. When a rate cut happens, it will bring mortgage rates down, providing much-needed relief and boosting market confidence further.

Despite borrowing costs being higher compared to the ultra-low rates of previous years, recent economic stability has reassured homeowners about their mortgage affordability, and they stand to benefit from the expected rate cuts. While all eyes will be focused on the upcoming election and its potential impact on the property market, experts suggest that its effect will be minimal, and it is not expected to disrupt the usual seasonal transaction patterns. The first interest rate drop is likely to have more impact on market activity than the upcoming election.

A CEO of another property company added that stability has been key to the returning health of the UK property market in recent months, aided by the freeze on interest rates since last September. While the nation’s homebuyers will have been hoping for a reduction today, the decision to keep the base rate at 5.25% will continue to steady the ship. This should help further boost the growing levels of buyer activity that have been building in recent months and ensure that the year ahead is far more positive for the market compared to the uncertainty of last year.

The head of UK residential research at a real estate firm noted that the UK housing market is still waiting for the first cut in more than four years, which will keep mortgage rates and sentiment in check over the summer. Stubborn services inflation means any cut may not happen until early autumn, but if mortgage rates fall in anticipation and stability returns to Westminster, we can expect higher levels of activity in the final four months of the year, which should push average UK prices 3% higher over the course of 2024.

A director at a property consultancy commented that no news is good news with respect to today’s decision. The certainty that comes from another hold on the base rate is better than the string of consecutive hikes seen in recent years. Mortgage approvals have topped 60,000 per month for three consecutive months, demonstrating that buyer confidence has been buoyed by the stability provided by a hold on the base rate. With the election unlikely to dampen this growing market momentum, the UK property market remains in a very strong position, particularly with the prospect of a cut on the horizon.

The CEO of an estate agency added that with a seventh consecutive hold on the base rate, the UK looks set to enjoy a summer of stability. The housing market has already responded with an uplift in both buyer and seller activity. While the election may take centre stage over the coming weeks, it’s unlikely to dampen current market enthusiasm. The outlook for the year ahead is very positive, even considering the absence of a reduction in interest rates. Stability has been key to the returning health of the UK property market in recent months, and the freeze on interest rates has played a significant role in this.

Overall, the decision to keep the base rate at 5.25% will help maintain the growing levels of buyer activity that have been building in recent months, ensuring a more positive outlook for the market compared to the uncertainty of last year.