interest rates BoE interest rate rise bank of england

Stability resumes: Bank of England holds interest rate at 5.25%

The Bank of England’s much awaited interest rate announcement saw it hold its current level of 5.25% in response to better than expected inflation results. 

The decision by the Bank of England has been reported to be a “big relief” for consumers, after many economists had originally predicted a rate rise of either 25bps or 50bps. The fact that the rate remains stable could indicate a turning point in the economy, and mortgage lenders have been anticipating this for a number of weeks.

Last week, The Mortgage Works was the first lender to offer a sub-5% fixed rate mortgage to buy-to-let borrowers since last year, and major banks as well as smaller, specialist ones are all racing to offer better rates and more enticing terms and product fees to secure customers.

Of course, borrowing costs are still much higher than they were a year ago, and this is having to be factored in by thousands of new and existing mortgage holders as they purchase or remortgage their properties. But it is a step in a positive direction and is expected to provide a boost to the UK’s property market.

Bank of England encouraged by falling inflation

In another surprise yet welcome announcement this week, the Office for National Statistics (ONS) revealed that inflation had dropped by more than anticipated in August, from 6.8% last month to 6.7%, after many had expected inflation levels to go up due to rising fuel prices.

This could start to alleviate the effects of the cost of living crisis, although the target level of inflation set by the government of 2% still feels a long way off. For this reason, most experts are predicting that we may not see the Bank of England begin to drop its interest rate for a while longer.

Andrew Bailey, governor at the Bank of England, commented on the decision: “Inflation has fallen a lot in recent months, and we think it will continue to do so.

“But there is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that.”

“Reassuring” for the housing market

As we know, mortgage rates have already been falling over the past few weeks, which is a huge boost for the property sector. We also know, though, that overall appetite for UK property has remained strong, particularly for those who choose to invest in housing as a medium to long-term venture.

While price rises have flattened across many parts of the UK – with areas in the north of England in particular bucking the trend – rental prices have done the opposite. Demand for rental homes among tenants is sky-high, meaning it is an extremely active market for investors right now.

As Nathan Emerson, CEO of Propertymark, points out, the Bank of England’s latest decision is certainly positive news for the industry.

“[It] will be reassuring for those looking to enter the housing market especially,” he said. “This now indicates that rises to interest rates have been impactful and that the fall in house prices has helped to even the affordability playing field and keep the wheels of the housing market turning.”

Matt Thompson, head of sales at Chestertons, says that the cost of borrowing is now expected to “stabilise” alongside the Bank of England’s latest decision to hold its base rate, but he does not anticipate that “mortgage rates will return to the low levels seen in recent years”.

He adds: “Nonetheless, we expect a positive response from buyers, who are now able to make financial decisions based on greater certainty that the cost of borrowing won’t increase much further.”

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