The central bank’s Monetary Policy Committee (MPC) chose to maintain the base rate at its level for the seventh month running with a vote of 7-2. 

 

A disappointing decision 

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said borrowers would have been hoping for a cut after inflation fell to the Bank of England’s 2% target. 

“The decision to keep rates at 5.25% will be very disappointing news for them, as well as those looking to buy their first home,” he added.

Broadhead continued: “With two of the nine members of the Monetary Policy Committee voting for a cut today, it is clear that some are holding out for more overwhelming evidence that inflation can consistently stay at or close to the target.

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“We still anticipate the bank rate will reduce this year; however this is happening much later and slower than we had anticipated earlier in the year.” 

Joe Pepper, UK chief executive of Pexa, also said this was disappointing, adding: “It now very much feels like mile 25 of a marathon for [borrowers] as we crawl to the next MPC meeting in August in the hope it will bring a substantial cut. They are, understandably, waiting for this to see if they can get a cheaper deal before remortgaging.” 

Pepper said a lower base rate later this year could result in “huge spikes” of activity in the mortgage and housing sectors, which could be “exacerbated” by incoming housing policies created to generate demand.

He added: “This is all very well and good, but the current conveyancing infrastructure is simply not equipped to handle a significant or sustained increase in transactions. 

“We must help lenders and conveyancers not only handle the increased demand from borrowers, but also to ensure that the UK benefits from the wider economic benefits that policies stimulating the front end of the market can bring.” 

 

Borrowers left waiting 

David Hollingworth, associate director at L&C Mortgages, said mortgage borrowers were “waiting once again” for a base rate cut. 

He added: “It must feel like an age that the potential for base rate to fall has been on the agenda. Whilst the expectation is still for falls to commence this year, the timing remains uncertain as the bank holds its line of ensuring that inflation is brought to heel. 

“The fall in the rate of inflation back to the 2% target edges us closer to the point when the rate of inflation looks more sustainable, opening the door to a cut. That offers some comfort to mortgage borrowers, who have had little to cheer about in the last few years.”

Kevin Roberts, managing director of Legal and General Mortgage Services, also said inflation hitting the Bank of England’s target was positive, but the central bank was likely waiting for wage and services inflation to fall further before adjusting the base rate. 

 

Not disrupting the market 

Other industry commentators suggested the decision could create stability and still result in lower mortgage rates. 

Hollingworth said mortgage rates were already steady and, although lenders continued to tweak pricing, “they remain substantially below the highs of last summer when rates spiked”. 

Matt Smith, mortgage expert at Rightmove, predicted that the market was “on course for a first cut by August”. 

In the meantime, he said the MPC’s decision was widely expected and “therefore, this certainty could still lead to mortgage rates trickling down rather than up over the next few weeks, which is really what homemovers are after”. 

Mark Harris, chief executive of SPF Private Clients, said most mortgage borrowers would not see many changes in the short term. 

He added: “Those on fixed and variable rates alike won’t see their monthly mortgage payments change, so those sitting on their lender’s standard variable rate [SVR] in the hope that rates will start falling soon may wish to seek advice and consider opting for a base rate tracker or fixed rate to reduce their mortgage payments.” 

Harris said the positive direction of inflation had resulted in swap rates falling, so “it will be interesting to see how they react to the voting split at this meeting”.

“The more members who vote for a rate reduction, the more likely it is that this will occur sooner rather than later, which is likely to be reflected in swaps and ultimately mortgage pricing. It will also impact how many rate reductions we see this year; with seven members still voting for a hold and two for a reduction, it may reduce the likelihood of more than one quarter-point cut in 2024. 

“A significant reduction in swaps over coming days may lead to mortgage rate reductions. However, it is only when the market feels the tide within the bank has turned that true reductions in fixed rate mortgages will reach the market again, bringing some good news for borrowers,” Harris added. 

Andrew Gething, managing director of MorganAsh, said while keeping the base rate at its level may not have been what some hoped for, it was expected, as “the central bank [was] always unlikely to pull the trigger straight away when inflation hit target”. He also said making such a call in the middle of an election campaign would have “surely weighed heavily on its decision”.

He added: “While not the news many would have hoped for, that continuity and stability on base rate will certainly help those not on a fixed rate, although the financial burden does remain painfully high for many families. A cut to base rate today would have just brought a welcome reprieve, but at least we are still talking about ‘when’ rather than ‘if’.”

Tony Hall, head of business development at Saffron for Intermediaries, agreed that the election played a “big role” in the MPC’s decision. 

Hall said: “If anything, the stability of the base rate, driven by the bank’s desire to ensure inflation is fully on a downward trend before making any changes, has reassured consumers and businesses that the mortgage market has fully recovered from the volatility of recent years.” 

 

Staying neutral

Karl Wilkinson, CEO of Access Financial Services, said “masses of potential first-time buyers and mortgage brokers” had been “waiting for Godot on an interest rate reduction since it hit 5.25% in August 2023”.

However, Wilkinson suggested the MPC “wouldn’t want to be perceived as politicking with the general election weeks away. It is ironic that in trying to avoid politicking, it is in fact politics that has influenced their decision not to start lowering base rates before the summer. This demonstrates yet another crack in the machine.”

Laura Suter, director of personal finance at AJ Bell, said the central bank had “taken a vow of silence” during the election campaign, meaning it would not have been able to explain its decision if it did cut the base rate. 

She added: “Without the ability to explain the thinking behind the decision and the future path for rates, it made sense for the bank to hold.” 

Suter said the outcome of the general election was also important, as whoever came in would be “changing policy, taxes and the fortunes of the UK economy, all of which play into the economic data the bank scrutinises every month.

“The MPC will likely want to examine any plans and the impact on inflation and other data before it makes the move to cut rates.” 

John Fraser-Tucker, head of mortgages at Mojo Mortgages, said the central bank had decided to stay neutral to avoid appearing to influence voters. 

He added: “Moreover, the housing policies of the elected government are likely to impact the outlook for the base rate going forward.

“Given the contrasting focuses, it makes sense for the BoE to wait and see which government is elected before lowering the base rate, otherwise it could add more uncertainty to the mortgage market right now.”