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

The Bank of England has chosen to maintain the rate of interest at 5.25 per cent for two consecutive instances, as anticipated by professionals in the industry. Those with knowledge of the field have proclaimed this development as beneficial for those borrowing money. However, they urge caution as borrowers and brokers alike still face potential obstacles.

The group of people in charge of the Bank's monetary policy, known as the Monetary Policy Committee (MPC), made a decision with a majority vote of 6 to 3. They chose to keep the base rate at 5.25 per cent. However, three members had a different opinion and wanted to increase the rate by 0.25 percentage points to 5.5 per cent.

Are Rate Increases Coming To An End?

Many people expected this decision, but specialists now indicate that the base rate may have finally reached its highest point.

According to David Hollingworth, who is an associate director at L&C Mortgages, borrowers are now anticipating that the rates will stop increasing as a result of the decision to hold. Nonetheless, we need to prevent any more unpleasant shocks and keep a close watch on inflation, but the mortgage market has been more stable already.

The opinion expressed was also shared by Ben Thompson, the deputy CEO at Mortgage Advice Bureau.

He mentioned that the decision to not increase interest rates today is positive for individuals whose mortgage agreements are ending soon, as well as individuals who are seeking to purchase their first home. Additionally, this decision is an indication that the Bank of England may have reached the end of the current period of interest rate increases. Nevertheless, it is important to remain vigilant and not become overly relaxed.

According to Rightmove's mortgage specialist Matt Smith, people seeking loans might feel more secure due to the central bank's decision to hold interest rates steady. With this reassurance, they may be inclined to enter the housing market again.

He expressed that a pause for the second time in a row is a positive signal that the base rate has hit its highest point. This sentiment will provide comfort to those who intend to secure a mortgage in the near future.

No Future Budget Cuts Expected

Most professionals believed that even though there was no change for the second consecutive month, the central bank would not anytime soon commence with reducing rates.

The CEO of Bluestone Mortgages, Steve Seal, expressed his approval for the recent decision to maintain interest rates which will benefit borrowers all over the nation. Although there has been a small stall in rates, they are currently at a historic high and it is doubtful that there will be any reductions in the near future. The biggest challenge for those who wish to borrow or who are currently borrowing will no doubt continue to be managing their ability to pay for their debt.

Rob Clifford, who is the main boss at Stonebridge, a company that arranges mortgages and insurance, thinks that it will take more than 12 months for the market to see any decrease.

He mentioned that we should be aware that keeping the base rate unchanged doesn't indicate an upcoming reduction. Many individuals believe that it may remain at the current level until early 2025, despite the predicted further decline in inflation. We must all adjust to being in a new environment with higher rates.

Impact On Borrowers: What To Expect?

The most recent stats from UK Finance (as of December 2022) indicate that around 800,000 fixed rate mortgage contracts (out of 6.8 million in total) will come to an end in the latter half of this year. Currently, over 770,000 borrowers are paying their lender's standard variable rate, while 639,000 are on a variable tracker rate.

Keeping this in consideration, individuals who have borrowed money might be expecting that another delay could result in improved interest rates in the coming days. However, opinions were not consistent regarding the trend. While a few specialists provided optimism, others were hesitant, and in certain instances, they were completely negative about the possibility of decreased rates.

According to Thompson, the market for mortgages has already experienced a decrease in the swap rates which are utilized to compute mortgage costs. It is anticipated that if the rate remains steady for a second time, homeowners might experience further reductions in the future. The potential future reductions in the underlying rate are welcome news for prospective buyers and individuals seeking mortgages.

Smith from Rightmove concurred.

According to him, a new mortgage plan has entered the market with a fixed interest rate of under five percent for a five-year term. This deal is especially relevant for those who intend to buy a house for the first time or move from their current residence since it only requires a deposit of 85% of the total loan value. The expert predicts that this trend of reducing mortgage interest rates will persist going forward.

Some were hesitant.

According to Chris Flower, who is a financial planner at Quilter, the recent decision to keep interest rates steady will have both positive and negative effects for homeowners, depending on their situation. People who currently have variable rate mortgages will not experience an immediate hike in their monthly payments, which will provide them with a degree of relief and stability. This is especially significant given that borrowers have already been under a lot of financial strain due to recent economic challenges.

If you want to remortgage or get a fresh mortgage, the criteria of the lenders are pretty strict. Even though fixed rates have dropped a bit, people who are new to this or those who want to switch may not witness significant cuts yet. However, things are starting to head towards the right direction.

At the same time, Alastair Douglas, who serves as the CEO of TotallyMoney, expressed that a number of property owners haven't experienced the full impact of past increases and will be taken aback when their set rate agreement finishes.

According to him, many people are having trouble making their mortgage payments which is causing an increase in mortgage defaults. He advises that if you are one of those people struggling to keep up with payments, you should contact your lender immediately. The Financial Conduct Authority has directed banks to prioritize their customers' needs. You may be able to reduce your monthly payments or extend the term of your agreement as a result of this directive.

Chatting Is Beneficial

Most importantly, specialists observed that although there is good news about the lowest interest rates, borrowers must consult with brokers first before entering the market again.

Tony Hall, who leads the team developing businesses for Saffron's intermediary clients, has advised people to tread with caution despite some positive signs in the housing market. He emphasized that borrowers should still seek professional advice before making any major moves. The current economic situation remains challenging for many customers, and payment shocks are still a potential threat that could arise as interest rates shift. By working with financial advisors, customers can navigate the housing market with greater ease and stay on top of their homeownership goals, even as the market changes.

John Phillips, who is the CEO of Spicerhaart and Just Mortgages, pointed out that brokers should take initiative with their clients and ensure that they were making wise choices.

He suggested that brokers need to embrace their clients and inform them about the resources that can aid in making financial calculations feasible. This is particularly crucial as interest rates are expected to remain elevated for a considerable period of time. This will not only assist those from various backgrounds in obtaining loans, but it will also assist in ensuring that repayments are made in a timely manner.