Bank of England holds interest rates – what does it mean for mortgages?
The Bank of England has held interest rates at 5.25 per cent for the third time in a row, offering a glimmer of hope for the mortgage and property market.
Steve Seal, chief of Bluestone Mortgages, said that today’s decision to leave rates untouched will be welcomed by “would-be and existing borrowers, who have felt the brunt of 14 rate rises in less than two years.”
He explained: “While this decision could indicate that rate rises have reached their peak, affordability remains a key concern as the cost of living crisis continues to squeeze the nation’s finances.
“For those worried about how they can climb onto or up the property ladder amid this challenging environment, rest assured that there is help at hand.”
He added: “Whether that be opting for a product transfer, asking for a payment holiday or being signposted to specialist support, the earlier they engage, the sooner they will receive the tailored support to help make their homeownership dream a reality.”
It comes as the UK’s property market has shown signs of tentative recovery in recent months, with mortgage rates edging down from their highs of over six per cent in the summer.
According to Money Facts Daily, the average two-year fixed residential mortgage rate is now 5.98 per cent.
Alex Lyle, director of Richmond estate agency Antony Roberts, said that another rate hold will be viewed as another “step in the right direction”.
He explained: “[It will] fuel 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.”
Frances McDonald, director of research at Savills, added: “The Bank of England’s decision to hold the base rate at 5.25 per cent is likely to bring more confidence to the UK housing market.
“Over the past year, higher mortgage rates have led to price sensitivity and lower levels of transactions, and a market which had been dominated by cash and equity rich buyers.
She added: “But although it looks as if interest rates have peaked, the first cut still looks someway off. That means heightened affordability pressures are likely to result in further (but more modest) house price falls of -3% in the first half of 2024.”
“Savills expects the market to bottom out mid-way through next year as mortgage rates start to ease more significantly in anticipation of a base rate cut later in the year.”
It comes as sellers and buyers alike will be saying goodbye to an incredibly tough year for the UK housing market.
A disastrous mini budget conducted by former prime minister Liz Truss crushed hopes for many prospective buyers at the start of the year, as the cost of mortgage borrowing surged and the impact was felt well into the first half of 2023.
According to Rightmove, the average cost of a property in the UK is now £355k, which is around £6,000 less than what a typical home cost last month. The cost of a home in England is still around £40k more expensive than it was pre-pandemic.