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Base rate hold unsurprising but cuts on horizon – reaction

  • 21/03/2024
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Base rate hold unsurprising but cuts on horizon – reaction
The decision by the Bank of England (BoE) to hold the base rate at 5.25 per cent was not a surprise to the sector, but there is hope that cuts will be coming soon.

The Monetary Policy Committee (MPC) voted by a majority of 8-1 to keep the base rate at 5.25 per cent, making it the fifth time that the base rate has been maintained at this level.

The move was widely predicted by experts following the latest inflation figures that came out yesterday and showed that the Consumer Prices Index (CPI) slowed to 3.4 per cent, which is a fall from four per cent reported in the prior two months.

Bank of England governor Andrew Bailey hinted today that rate cuts could be coming later this year.

Rob Clifford, chief executive of mortgage and protection network, Stonebridge, said that even with the inflation drop reported yesterday, a cut in the base rate “always felt like a bridge too far” for the MPC at this month’s meeting.

However, he said that with the Office of Budget Responsibility (OBR) predicting that inflation would hit its two per cent target in the next few months, a base rate cut is “not a million miles away”.

Clifford continued: “In the meantime, the likelihood is that mortgage product rates are not going to move much in the coming weeks, and we must also recognise that, even with a cut, there won’t be a huge shift downward in pricing.

“For advisers, it is therefore all about making their customers aware of this and continuing to provide solutions based on the market as it is today, not what it was in the past or what it might be months down the line.”

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said that the maintenance of the base rate was “widely expected” but noted that it looked like a cut in the base rate would be made in the “coming months”.

“The anticipated cuts later in the year have already seen a reduction in mortgage rates, which has led to an improvement in consumer confidence in the housing market. This month, fewer people said they are concerned about being able to pay their mortgage, with 90 per cent saying they are confident that they can maintain their mortgage payments – an increase from 85 per cent in December 2023.

“Although mortgage affordability remains the biggest barrier to buying a home, it is reassuring that this has fallen significantly over the past six months, from 71 per cent in September 2023 to 62 per cent,” he added.

Ben Thompson, deputy CEO at Mortgage Advice Bureau (MAB), said that an “unchanged rate is the next best thing”.

He said: “As inflation continues its downward trend, all eyes will be on the voting intentions of the BoE’s MPC. With just one member voting for a rate cut this time around, it might take a little longer for momentum to build toward base rate cuts.

“The good news is that mortgage rates are lower than they were this time last year. Inflation continues to slow, and we’re edging ever closer to a base rate cut, with optimism remaining that more lenders will look to lower their rates even further.

“Those looking to get on the property ladder should start getting mortgage ready by speaking with a broker. Homeowners looking to remortgage should also begin to look at what deals are available.”


Stable base rate could be opportunity for lenders to cut rates

John Phillips, CEO of Spicerhaart and Just Mortgages, said that it was a “real shame” that the MPC “didn’t seize the opportunity to make the first long-awaited cut to base rate”, especially given inflation news.

“While the central bank does have to exercise caution to reach its two per cent target, it’s critical it doesn’t stifle the economy by making a decision too late. A base rate cut today would have added some fantastic momentum to the confidence we have seen return back to the market and helped in some way to answer the affordability challenges many are still experiencing.

“Nonetheless, a fifth consecutive hold brings stability and along with yesterday’s inflation news, may reflect positively on swap rates – giving lenders the opportunity to reprice rates, even if only marginally,” he noted.

Phillips said that, without any government intervention from the recent Budget or movements in the base rate, then “brokers must continue to get the basics right, pound the pavement and offer that five-star service to continue nurturing this confidence and help answer this growing appetite to get moving plans back on track”.

John Tarazi, Echo Finance director and mortgage adviser, agreed that the market would continue to “normalise”, with a cut arriving by the end of summer.

“In the meantime, mortgage rates might be somewhat up and down, as we have seen in recent months, with lenders attempting to outprice each other. The good news is that there are now plenty of options out there for borrowers, as some lenders have introduced flexible products designed to support their customers in uncertain times. These include shorter fixed rates and deals that can be exited with minimal hassle.

“If you are applying for a mortgage or are due to remortgage, my advice is to speak to a mortgage broker to get an overview of all of your options. If there’s a favourable rate available right now, they can help you secure it and navigate today’s ever-changing market,” he said.

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