Yesterday, the Bank of England announced it was holding interest rates at 4.5% due to inflation concerns. Will the decision have an impact on the UK property market?
As many analysts had expected, the Monetary Policy Committee voted to keep the base rate at its current level of 4.5% this week, with just one of the nine members voting for a rate cut.
This is predominantly influenced by the economic and inflationary outlook, after the latest figures revealed inflation had risen to 3%, which is higher than the Bank’s 2% target.
For property investors (or prospective ones), the decision could play a role in determining portfolio management over the coming year. While lenders can shift their rates marginally independently of the Bank’s base rate, borrowers may not see rates fall at the speed they were hoping for. At the same time, investors will be weighing up the property market outlook compared with savings rates.
Another consideration for property investors is the economic outlook itself, with the Bank’s latest decision providing some reassurance to property buyers that the economy is being handled carefully and that inflation will be further curbed this year which will stabilise markets.
As Nathan Emerson, CEO of Propertymark, commented: “It is reassuring to see the base rate held, especially considering the many national and international factors that continue to shape the global economy currently.
“With inflation currently standing at 3 per cent, which is above the initially targeted rate by the Bank of England, it important there is very careful consideration over the forthcoming months to keeping the economy heading on the right pathway. Higher interest rates can of course affect mortgage products that are on offer, so it would always be welcome to see base rates lower when the wider economy fully allows.”
Interest rates on mortgages and savings
The fundamentals of the UK housing market continue to hold up property investment as one of the more lucrative places to invest. House price growth, particularly in the north of England, demonstrates the market’s resilience despite affordability constraints, while the rental market continues to experience extremely high demand, providing strong rental yields for landlords.
Mortgaged property investors seeking fixed rate options now will find that mortgage rates have fallen over the past month, with average two-year and five-year fixed rates seeing their biggest marginal falls in almost six months, according to the latest figures from Moneyfactscompare.
This has created positive sentiment across the market, as lenders continue to compete for borrowers despite interest rates being held by the Bank of England, while the mortgage sector experienced a surge in appetite ahead of the stamp duty change coming up on 1st April.
At the same time, Moneyfactscompare notes that savers are “bearing the brunt of the recent Bank of England base rate” decision. This means reduced interest rates on easy access and notice accounts since the start of the month, with the average easy access account rate now at 2.85%, while the average interest rate on notice accounts is 3.86%.
On ISAs, interest rates have also fallen, with easy access ISAs now providing average rates of 3.03%. while notice ISAs offer 3.79%.
With more rate cuts on the cards, those with significant savings may once again begin to look at more lucrative options for their returns; and with the property market outlook in top-performing locations continuing to hold its own, this could lead to more interest from investors in UK bricks and mortar.
Positives for property investors
As Alpa Bhakta, CEO of Butterfield Mortgages Limited, notes: “While property investors were hoping for a rate cut, the economic climate and property investment outlook are in a much better position than in previous years.
“It’s important to remember, the upcoming Spring Budget and new tax year could influence market conditions and introduce some uncertainty. As such, it’s essential for lenders to stay proactive, supporting borrowers and brokers, to ensure the market can capitalise on its strong start to the year.”
Getting inflation under control remains a key priority, which will also have a positive impact on the housing market as things stabilise. The Bank of England continues to adopt a ‘slow and steady’ approach as a result, but the expectation is that it will be cutting interest rates later in the year – ultimately leading to better mortgage deals for borrowers and another catalyst for the UK property market.
According to Peter Stimson, Head of Product at MPowered Mortgages, the inflationary threat could be “short-lived”, and the mortgage market continues to work on the assumption that, once inflation falls, base rate cuts will resume in order to “stimulate the UK’s stagnant economy”.
“The Bank predicts that GDP will grow by a meagre 0.75% in 2025, and with the giant threat of US tariffs still looming, the swap markets’ prediction of two further base rate cuts this year may be undercooking things. The chance of three rate cuts – taking the base rate below 4% by the end of the year – is in our view looking increasingly likely.
“For now the waiting game continues, and mortgage interest rates are unlikely to budge in coming days. But after a quiet start to the year, many lenders are itching to lend and there’s likely to be a surge in aggressive rate-cutting in coming months as they fight for market share.”
