Market accepts base rate hold, as future rises predicted – Mortgage Strategy

The mortgage market accepted the Bank of England’s decision to hold base rate at 3.75% today, but said future rises were inevitable.

The decision to pause base rate came as the Monetary Policy Committee (MPC) decided it was necessary to keep inflation under control.

The MPC voted by a majority of 6–3 to maintain base rate at 3.75%. Three members voted to increase it to 4%.

The MPC said: “In response to events in the Middle East, crude and refined energy prices have remained volatile and higher than pre-conflict.

“The impact of the energy shock on the UK economy remains uncertain. Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.

“The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy including via financial conditions.”

The market agreed with the decision to hold base rate, but said the MPC could not keep playing the same card forever.

Pepper Money director of second charge mortgages Ryan McGrath: “A hold gives borrowers a breather, but it doesn’t undo the financial pressure that’s built up over the last couple of years.

“Swap rates, which many lenders use to price fixed mortgage deals, have already moved in anticipation of where the base rate is heading, so a hold doesn’t necessarily mean product pricing will stand still. Many customers are still rolling off far cheaper fixed rates onto deals that cost them hundreds more a month, and the effective rate on newly drawn mortgages has been drifting upward for months.”

SPF Private Clients chief executive Mark Harris said: “This time around, the vote split was 6-3 with three members favouring a quarter-point increase to 4% compared with the two members who voted for a hike at the last meeting.

Prevailing caution feels the right response for now, with a steady hand on the tiller rather than a knee-jerk reaction to raising rates, which is vital for overall market stability and confidence.

“Despite the rate hold, borrowers still have to contend with an upwards trajectory in mortgage pricing, with a number of lenders increasing rates on their two- and five-year fixes. Mortgages are more expensive than they were a month ago, so affordability concerns remain. Independent advice is more important than ever, as is securing a rate as soon as possible with the option of reviewing it before completion to see whether there is a better product available at that time.”

John Phillips, chief executive of Just Mortgages and Spicerhaart, said: “The decision to leave the base rate unchanged was largely priced in, as better-than-expected inflation data helped negate the need for the central bank to pull the trigger on any rate increase.

“For once, I think we’re all grateful for the bank’s patient, cautious approach as it monitors the impact of the Middle East conflict – which by all accounts, the UK has managed to weather pretty well so far. Even as oil prices have risen once again following the collapse of peace talks.”

RAW Capital Partners chief executive Ben Nichols said: “While strikes in the Strait of Hormuz have added upwards inflationary pressure and oil prices remain volatile, the annual inflation rate has been slowing more than expected in recent months.

This has allowed the MPC to provide some continuity for brokers and borrowers by holding interest rates for the fifth consecutive time. Such stability is to be welcomed during a period of political and economic volatility.

“But there remain doubts as to how long we can stay in this holding pattern. Many economists expect interest rates to rise later in the year. The extent of that rise will be determined by several key factors, most notably: how the conflict in the Middle East unfolds and what this means for oil prices, and how the market responds to the policies of the new Andy Burnham government, including the Autumn Budget.”

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said: “A hold at 3.75% was overwhelmingly the expectation.

“For the property market, the practical read is that mortgage pricing had already moved ahead of the announcement – several major lenders raised rates last week – so today was unlikely to be the trigger for further movement, but the tone of the Monetary Policy Report could keep upward pressure on fixed-rate pricing into the autumn.”