Base rate hold disappointing but mortgage market in better position – reaction

Base rate hold disappointing but mortgage market in better position – reaction

Earlier today, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) maintained the base rate at 5.25%, the six consecutive time that the base rate has been frozen at this level.

Max Shepherd, group economist at Yorkshire Building Society, said that the move was expected, with BoE governor Andrew Bailey has said he is “optimistic things are moving in the right direction, implying interest rate cuts are on the way”.

He continued: “We still expect interest rates in the UK to go down this year – it’s just a question of when. The market currently expects only two cuts this year, though at the end of 2023, there was an expectation of five or six in 2024.”

Shepherd noted that US inflation was increasing again, which is one of the main reasons that fewer rate cuts are expected this year.

“The US are thought to be less likely to lower interest rates in the coming months, which makes the BoE less likely to cut too. UK data is also having an influence. While inflation is slowing, there are signs of persistence in the price of services, and the labour market is proving more resilient than anticipated,” he said.


Mortgage market in more ‘robust position’

Kevin Roberts, managing director for Legal and General Mortgage Services, said that the market expects the base rate to be cut in August, but each release changes the expected timing, and the “recent volatility looks set to continue for now”.

He continued: “There is no doubt that the market is not only busier, but also in a more robust position, than it was last year. The question on everyone’s lips is now ‘when’, and not ‘if’, we’ll see that reduction in the base rate.

“Those buying and remortgaging have enjoyed the competition on pricing that we’ve seen so far in 2024, with average rates comfortably below the figures we saw last summer. We are seeing strong demand across the board, but particularly from first-time buyers, who are being helped by wage inflation and house price stability, as well as wider inflation edging down slightly.”

Roberts said that the market “remains slightly sensitive to pricing changes”, and some buyers are “holding out” for further rate drops before taking the next step in their homebuying journey.

“Whatever your next move, we always recommend consulting a professional mortgage adviser before committing. Advisers are trained to navigate the complexities of the market, and are poised to offer tailored support throughout what’s likely to be the largest purchase of your life” he added.

Ben Allkins, head of mortgages and protection at Just Mortgages, said that it was difficult not to see today as a “missed opportunity”, especially as inflation continues to “head in the right direction”.

“I know the central bank has many factors to consider and often follows the lead of the Fed and ECB, but further delays keep the economy fighting for life and risk derailing all the positive momentum we have seen in the mortgage market so far this year.

“Just recently, we have seen the impact of the changing expectations and a higher-for-longer mentality, with swap rates rising and lenders following suit across their product ranges,” he said.

Allkins said that Just Mortgages had been “encouraged by the high demand” for valuations and appointments, showing “growing confidence” among customers.

“However, further delays make the job much harder for brokers to nurture and sustain this confidence. Thankfully, they are well-placed to help clients navigate the market and identify the opportunities still available to make their plans a reality. It’s up to brokers to keep sharing this message and offering that five-star service.

“We have to hope that the BoE finally finds the confidence to pull the trigger on a base rate cut sooner rather than later,” he said.


Base rate hold puts market on a ‘stable footing’

Paul Glynn, CEO of Air, said that today’s decision was “not the news many hoped for”, but it “keeps the market on a stable footing”.

He said: “Those on variable rates and trackers may be disappointed, but borrowers on fixed rates remain hopeful for reductions later in the year. Falling inflation also continues to ease the financial squeeze, meaning a lower base rate this year is a question of when, not if.”

Glynn said that there is “light at the end of the tunnel”, but the situation is “challenging for some borrowers”.

He said: “Thanks to a distinct imbalance between house prices and wage growth, more older borrowers will have to come to terms with managing mortgage debt in retirement. The market has undergone irreversible changes and advisers must acknowledge the reality of the situation.

“Engaging in conversations with consumers on working solutions, including later life lending, at an earlier stage must become the norm to secure good customer outcomes.”

Chris Little, chief revenue officer at Finova, said that the base rate had remained “stubborn”, but the market had “entered a new phase of stability”.

He noted that the top six lenders expect gross lending to reach a “healthy” £250bn in 2024, “buoyed by strong product transfer activity and relatively consistent swap rates”.

“However, there is a slight lingering air of uncertainty in the market. Given the current electoral cycle, it’s possible that many first-time buyers will stay put, and a mixture of cost-of-living pressures and affordability hurdles will also influence their decision-making,” Little said.

He continued: “In a highly competitive market, lenders must offer personalised rates that suit the individual financial profiles of borrowers while not endangering the lender’s liabilities. As we know, buying a house is the single-biggest purchase most people will ever make.

“As UK Finance reported, almost one in five first-time buyers were borrowing with a term of over 35 years in 2023. As such, lenders should take full advantage of technology to provide truly tailored pricing, creating a scenario where buyers can access the most affordable rates without any risk to the lender’s liabilities.

“The future is flexible pricing that can adapt to real-time market trends at speed – and the way to get it is through more dynamic pricing platforms.”