The MPC announced that it held the base rate at 4% this month, primarily due to the expectation that inflation would rise slightly to around 4% in September after it stood at 3.8% in August.
Although markets originally predicted there would be one more cut to the base rate before the end of the year, after the inflation data was published, this month’s decision became widely anticipated. Following this month’s meeting, financial services professionals said this could mean few changes to mortgage pricing.
Likelihood of a base rate cut before 2026
Peter Stimson, director of mortgages at MPowered, said the chances of a base rate cut in September “had been dead for weeks” and “buried” by recent inflation data.
He suggested that the MPC would not “dare” to cut interest rates to avoid worsening inflation but said with two members voting for a 0.25% reduction, “the prospect of a cut in November is still firmly on the table”.
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Stimson said the bank was leaving itself “plenty of wriggle room” and holding a reduction off until 2026 was “more than possible”.
Rob Clifford, chief executive of Stonebridge, said the decision showed that the central bank was “increasingly cautious”, adding: “The spectre of 2022, when prices spiralled, still looms large for the MPC – and it is clear it is determined not to repeat exposure to that risk, even though some regard it as remote.”
Colin Bell, COO at Perenna, said persistent above-target inflation made “any likelihood of mortgage rates dropping this side of Christmas extremely slim, with thousands of borrowers facing a sharp reset in repayments as they remortgage, potentially adding hundreds of pounds to monthly outgoings”.
Charles Resnick, chief finance officer at Afin Bank, said it was to be expected that this month’s MPC decision would be calmer than last month’s, which saw the committee hold a re-vote before cutting from 4.25% to its current level.
He added that with the market pricing in one more rate cut before the end of the year, the MPC still needed to consider how the Budget and any possible tax rises would impact the economy.
Resnick added: “For now, borrowers can expect to see their mortgage interest rates remain at current levels, while savers might consider taking advantage of some of the higher, longer-term fixed rates on offer to make the most of their money before the base rate drops again.”
Mortgage rates to level out
Clifford continued to say this meant it could be “some time” before borrowing costs fell, as the odds of another cut this year were one in three and the markets expected the next 0.25% cut to occur during spring next year.
Clifford added: “That will disappoint some borrowers holding out for further cuts before switching deals. But conditions have improved significantly over the past 12 months to the great advantage of most borrowers. Mortgage rates are around 50 basis points lower than a year ago, thanks to cheaper funding and fierce lender competition. That means there are plenty of attractive options on offer to those who need to refinance before the end of the year.”
Stimson added that the mortgage swaps market still suggested there would be two more base rate cuts, with the possibility of this taking place in the new year.
He continued: “The upshot of all this is that after months of intense competition, mortgage lenders currently have no scope to cut their interest rates any further.
“In fact, we’ve even seen a few lenders allow their fixed rates to creep up over recent weeks and it’s becoming increasingly clear that we’re at, or close to, the bottom of the interest rate cycle.”
John Fraser-Tucker, head of mortgages at Mojo Mortgages, agreed that this meant “borrowing costs [would] remain broadly where they are for now”.
He added that the decision would not bring immediate relief to borrowers, but did offer predictability.
“For prospective buyers, today’s announcement keeps the mortgage landscape much the same.
“That can make it easier to plan a purchase without worrying that rates will spike unexpectedly,” Fraser-Tucker added.
A rebound for the market?
Claire Van der Zant, CEO of Novus Strategy, said it seemed like the Bank of England was “drip feeding” cuts, but the mortgage market was “primed for a rebound”.
She added: “Transactions haven’t been over 100,000 in a single month since September 2021 and yet between 2013 and 2019 they were regularly at or approaching this level, crossing this boundary seven times.
“With money markets pricing in two more rate cuts by the end of next year and affordability measures easing back, the market could return to similar volumes relatively soon as buyers start reacting to a more favourable rate environment.
“If that proves correct, then lenders, brokers, agents and conveyancers need to be ready for more transactions. While that’s great news for everyone, lenders are going to have to be careful because they find it harder to make money the lower interest rates go.”
