Back-to-back interest rate cuts were not on the agenda at today’s Monetary Policy Committee meeting, with the base rate held steady at 4.25%.
As the majority of analysts had predicted off the back of the latest inflation results – with the CPI standing at 3.4% in May – the Bank of England has announced that interest rates will stay as they are for now.
Policymakers were also influenced by the continued rising cost of food, along with geopolitical tensions across the Middle East potentially affecting price stability.
This made the interest rates outcome today “almost inevitable”, according to Paresh Raja, CEO of Market Financial Solutions. However, he urges consumers to “see the bigger picture” surrounding interest rates.
“The base rate is 0.75% lower than it was ten months ago, and a gradual decrease is still expected in the coming year. The challenge right now is to ensure inertia doesn’t set in within the property market while would-be buyers wait for further cuts; we have to unlock buyer demand right now.”
Some stability for fixed-rate borrowers
Paresh added that lenders must not dwell on today’s outcome for interest rates, and instead remain agile in order to give borrowers what they need and keep the property market strong.
“With the prospect of multiple rate cuts in the second half of this year now fading, it’s vital that lenders continue to adapt their products and offerings in line with borrowers’ needs,” he added. “If they can do that, investors should have the confidence to execute their plans, helping to unlock activity across the market despite the higher-rate environment.”
The Bank of England base rate tends to have the biggest direct and immediate impact on tracker mortgages and standard variable rates (SVRs). Those who hold a fixed rate product will continue to benefit from the financial certainty this provides – while those who are set to remortgage should still see a competitive range of products.
“It’s important to remember fixed mortgage deals are less beholden to sudden changes to the base rate, as lenders typically price forecasts in ahead of time,” said a spokesperson for Moneyfactscompare.
“This might explain why the average five-year fixed rate dropped just 0.01 percentage point in the month to June to charge 5.09%, despite last month’s base rate reduction. The average rate charged by a two-year fixed deal, meanwhile, fell by 0.06 percentage points to 5.12% over the same timeframe.”
Interest rates impact on investors
While many had hoped for swifter cuts to interest rates and bigger reductions in borrowing costs, historically interest rates are not significantly high.
Research has found that more long-term property investors have become cash buyers, allaying the potential turbulence in mortgage rates. For others, investing in locations or property types with a lower initial cost, thereby reducing the amount needed to be borrowed, can be a popular strategy.
Investors who are able to adapt to the market by planning ahead and making sound purchases are likely to be the least affected by current interest rates. The strength of the rental market adds to this, with landlords posting stronger than ever yields in some locations.
Daniel Austin, CEO and co-founder at ASK Partners, said: “Investors and developers are watching closely. Demand remains strong in resilient sectors like co-living and build-to-rent, where supply-demand imbalances keep capital flowing. A clear, downward path for rates would help unlock further activity – but with uncertainty still high, staying agile is essential.”
Meanwhile, Paul Noble, CEO of Chetwood Bank, is critical of the caution being shown in today’s interest rates decision: “A hold today is the cautious choice, but leadership means more than playing it safe. The MPC’s decision will be welcomed by some, but it’s another example of cautious drift over clear direction. Holding their ground may make sense given chaotic global pressures, but it’s not the decisive leadership our economy needs.
“The economy has been through the ringer, with the Chancellor’s plan providing domestic pressures to add to those caused by the US, Russia, and beyond. However, the central bank continues to act as though inflation is the only variable that matters.
“The MPC’s lack of action piles on greater uncertainty for mortgages as well, leaving would-be buyers in the lurch. This cautious approach could lead to greater paralysis when what markets need is a catalyst. For savers, the risk is time – it’s vital to find to best returns, to stay flexible, and to stop letting handwringing on Threadneedle Street dictate their outcome.”
