Interest Rates Unchanged, But Real Estate Sector Welcomes Signals of Future Reductions – TNT

The Bank of England left interest rates on hold at 4.25% yesterday, but the property industry has broadly welcomed signals of further cuts in the cost of borrowing, which could come as soon as August, after “clearer evidence” of growing unemployment amid a slowing economy.

Uncertainty facing the economy led to interest rates being held this month, with six members of the Bank’s nine-member monetary policy committee (MPC) voting to keep rates on hold while three preferred a reduction to 4%, to add to the four quarter-point cuts since last August.

Since the bank’s rate-setting committee last met in May, oil prices have risen by 26% while gas prices have grown by 11%.

The Bank’s governor, Andrew Bailey, said interest rates “remain on a gradual downward path” after “seeing signs of softening in the labour market”. He cautioned, however, that the world was “highly unpredictable” and it was difficult to predict when interest rates would next be reduced.

Financial markets expect the MPC to reduce rates at its next meeting in August, and again to 3.75% before the end of the year.

Industry reaction: 

Nathan Emerson, CEO of Propertymark, commented: “There has been much talk of base rate cuts potentially happening across the summer months, and although yesterday hasn’t delivered any dip, it remains positive to witness overall stability. This is especially prevalent when you consider the vast turbulence we have seen across the wider global economy.

“As we head further into the summer months and as the housing market hits its seasonal busy period, if conditions permit, it would be positive for consumers to have that much-anticipated catalyst of further cuts in base rate to help boost affordability and confidence.”

Matt Smith, Rightmove’s mortgages commentator, said: “Home-movers will have to wait a little longer for a third Bank Rate cut of the year, but yesterday’s hold was widely anticipated. Despite the global uncertainty and turbulent events that we’ve had so far this year, the mortgage market has remained fairly stable. We’re broadly where the markets expected us to be at the start of the year in terms of inflation and rate cuts.

“Lenders have a bit of room to reduce rates further even with a hold in the Bank Rate today so home-movers can still be hopeful of some small mortgage rate cuts over the next couple of weeks. Average rates have been pretty flat in recent weeks, but we have seen increasing signs of competition amongst lenders as they have reduced their stress-testing criteria and with new mortgage products coming back to market, lenders are looking at ways to support more people get the home that they want.”

Kevin Roberts, managing director of L&G’s Mortgage Services, remarked: “I don’t think too many people will be surprised at the base rate holding at 4.25%, but there’s still plenty of positives in the market. We’re seeing more sub-4% deals on offer, along with some innovative products, with higher LTVs and low, or no deposits.”

Jonathan Handford, MD of Fine & Country, stated: “The Bank of England’s decision to hold the base rate at 4.25% comes against a backdrop of persistent inflationary pressures, making the balancing act between price stability and economic growth more challenging.

“While inflation remains above expectations, the housing market has shown remarkable resilience – buoyed by the May rate cut, improving mortgage affordability, and lender adjustments to borrowing criteria.

“Activity remains steady, with May seeing a four-year high in sales agreed. With supply also up 13% year-on-year, buyers are benefitting from greater choice, while house prices growth is being kept in check. Holding rates steady should help sustain market momentum without adding further inflationary risk.”

Jean Jameson, chief sales office for Foxtons, commented: “Given the fact that inflation remains stubbornly higher than the Bank of England’s two percent target, a hold on the base rate was widely expected and is unlikely to deter the nation’s homebuyers who have been entering the market in force since the start of the year.

“Stability is key when it comes to market confidence and since interest rates have started trending downwards we’ve seen robust mortgage approval numbers. These are now converting to more offers made, more sales agreed and even greater positivity with respect to the upward rate of house price growth.

“We’ve already seen many lenders re-introduce sub four percent product offerings as a result of increased competition and, with this level of market activity only expected to strengthen over the coming months, the nation’s buyers and remortgagers should continue to benefit from improved levels of affordability.”

Marc von Grundherr, director of Benham and Reeves, commented: “The decision to hold the base rate is a pragmatic one, and while it may not move the dial dramatically, it reinforces the growing sense of stability returning to the property market. In London, where the cost of homeownership is considerably higher, even small fluctuations in borrowing costs can have a significant impact on buyer sentiment and affordability.

“A hold on rates provides much-needed breathing room for those navigating the capital’s challenging market, particularly first-time buyers and upsizers who are already stretching their finances. We’ve seen renewed confidence over recent months, with buyers beginning to return and sellers adjusting expectations — the decision will help to maintain that momentum.”

Matt Thompson, head of sales at estate agency Chestertons, noted: “Some buyers paused their property search in the hope for another interest rate cut and a more varied selection of mortgage products but higher-than-expected inflation has diminished those odds for the time being. We have recently seen some lenders increase the cost of their fixed-rate deals but there are still sub-4% options available which will encourage some house hunters to resume their search over the coming weeks.”

Iain McKenzie, CEO of The Guild of Property Professionals, commented: “The Bank of England’s decision to hold the base rate at 4.25% is a clear signal of caution in the face of conflicting economic data. While the move may disappoint some borrowers hoping for further relief, it is a pragmatic response to the difficult balancing act of nurturing economic growth while reining in inflation.

 “With May’s inflation figures coming in higher than expected at 3.4%, the Monetary Policy Committee has understandably opted for a ‘wait and see’ approach. GDP growth in Q1 of 0.7% has likely given the Bank confidence that the economy can withstand current rates, allowing it to prioritise the fight against inflation without risking a slowdown.

“For the housing market, this decision provides stability rather than a new stimulus. The benefits of the May rate cut are still filtering through, with recent sub-4% mortgage headlines helping boost market activity to a four-year high for agreed sales. This ongoing momentum, coupled with lenders relaxing affordability criteria, means the market is well-placed to continue its resilient performance.

“While a further cut would have been welcome, the hold ensures the market remains on a steady footing. The balance between buyer demand and a healthy increase in housing supply will continue to support transaction levels while keeping price growth in check. All eyes will now be on the next set of inflation data to signal the Bank’s future direction.”