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Bank of England base rate pause is ‘welcome news for borrowers across the country’ – industry reaction

  • 02/11/2023
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Bank of England base rate pause is ‘welcome news for borrowers across the country’ – industry reaction
The Bank of England has held the base rate at 5.25 per cent for the second time in a row, as forecast by industry experts. Industry insiders have heralded this as good news for borrowers but caution that borrowers and brokers alike are not out of the woods yet.

The Bank’s Monetary Policy Committee (MPC) voted by a 6-3 majority to maintain the base rate at 5.25 per cent. Three members preferred to increase it by 0.25 percentage points to 5.5 per cent.


The end of rate rises?

The move was widely predicted, but experts now suggest that the base rate may finally have peaked.

David Hollingworth, associate director at L&C Mortgages said, “With another hold decision, borrowers will now be hopeful that they have seen the last of rising rates. Of course, we will need to avoid any more nasty surprises and see inflation continue to fall but the mortgage market has already shown much greater stability.”

Ben Thompson, deputy CEO at Mortgage Advice Bureau agreed with that assessment.

He said: “Today’s hold in interest rates is good news for those with mortgage deals expiring soon, and prospective buyers looking to get onto the property ladder. Another hold is likely a sign that the Bank of England has now concluded this cycle of interest rate hikes. But we mustn’t get complacent.”

And Rightmove’s mortgage expert Matt Smith felt that borrowers could feel ‘reassured’ by the hold and look to delve back into the market once more.

He said: “A second consecutive pause is a good indicator that the base rate has reached its peak, which will be reassuring to those looking to take out a mortgage soon.”


No cuts in near future

However, the majority of experts were in agreement that a second month of stability did not mean that the central bank was likely to start cutting rates anytime soon.

Steve Seal, CEO of Bluestone Mortgages, said: “Today’s decision to hold interest rates is welcome news for borrowers across the country. Though rates have somewhat stalled, they are still at a historic high and it looks unlikely that there will be any cuts on the near horizon. Without a doubt, affordability will remain the key challenge for would-be and existing borrowers across the country.

And Rob Clifford, chief executive of mortgage and protection network, Stonebridge believes that the industry will have to wait for over a year before we see any reductions.

He said: “We must be mindful that holding base rate does not mean a cut will follow anytime soon. A common view is that this could stay at today’s level until the early part of 2025, even if – as anticipated – inflation does fall further. We are all in a new higher rate environment that we need to get used to.”


What does this mean for borrowers?

According to the latest figures from UK Finance (December 2022), an estimated 800,000 fixed rate mortgage deals (out of 6.8 million holders) are set to mature in the second half of this year and more than 770,000 borrowers are currently on their lender’s standard variable rate while 639,000 are on a variable tracker rate.

With that in mind, borrowers may be hoping that a second pause could lead to better rates in the near future but views were mixed on the direction of travel . While some experts offered hope, others were sceptical, and in some cases, they were downright pessimistic about the eventuality of reduced rates.

Thompson said: “The mortgage market has already seen drops in the swap rates used to calculate mortgage prices, and there is hope that a second consecutive pause might mean more reductions ahead for homeowners. Prospective buyers and mortgage customers will be relieved by the prospect of a steady rate, and hopefully not too distant reductions in the base rate.”

Rightmove’s Smith was in agreement.

He said: “We’ve now seen the arrival of a sub- five per cent, five-year fixed rate mortgage in the important 85 per cent loan-to-value bracket – the deposit size we see for many first-time buyers and home-movers. After today’s news, we can expect mortgage rates to continue to edge downwards”.

Others were not so sure.

Chris Flower, chartered financial planner at Quilter, said: “For current and prospective homeowners, a further hold on interest rates will offer somewhat of a mixed bag. Those on variable rate mortgages will not see an immediate increase in their monthly payments, and the stability will provide further reprieve for borrowers.

“For those looking to remortgage or take out a new mortgage, lenders appear to be remaining very strict with their criteria. Though fixed rates have lowered slightly, new borrowers or those looking to switch may not yet see significant reductions, but things are beginning to move in the right direction.”

Meanwhile, Alastair Douglas, CEO of TotallyMoney, said some homeowners haven’t yet felt the brunt of the previous hikes, and “will be in for a shock when their fixed rate deal comes to an end”.

He said: “Mortgage defaults are already rising at the fastest pace since 2009, and if you’re struggling to keep up with payments, then get in touch with your lender as soon as possible. The Financial Conduct Authority has ordered banks to put their customers’ needs first, and this means you could move to reduced monthly payments or extend the term of your deal.”


It’s good to talk

Above all, experts noted that, despite the better base rate news, borrowers should seek out advice from brokers before diving back into the market.

Tony Hall, head of business development, at Saffron for Intermediaries said: “Despite these signs of positivity, borrowers should still seek advice in order to navigate this complex market. Many customers will still be facing challenging financial situations, and the threat of payment shocks remain significant as they adapt to the new interest rate environment. Financial advisors can assist clients as they sail through these final choppy waters towards shore, helping customers find the best options available to them and ensuring they can fulfil their homeowning dreams.”

And John Phillips, CEO of Spicerhaart and Just Mortgages noted that brokers needed to be proactive with their clients and ensure that they were making the right decisions.

He said: “With the expectation that rates will stay higher for longer, brokers must throw their arms around clients and educate them about the tools available to help make the numbers work and support borrowers of all backgrounds.

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