Disappointment for mortgage market as Bank of England keeps interest rates on hold | Mortgage and Property

"Mortgage Rates Hold Steady: What’s Next?"

After the US Federal Reserve announced a bigger than anticipated interest rate drop of 0.5% yesterday, there was some optimism that the Monetary Policy Committee (MPC) might keep up the trend of rate reductions that started last month. As we approach the Autumn Statement, mortgage and real estate professionals have a lot to think about as we look ahead to the last quarter of the year and into 2025.

Mortgage and property experts have expressed the following insights in response to today's announcement about interest rates:

Jatin Ondhia, the CEO of Shojin, commented, “Persistent inflation has led the Bank of England to stick to its cautious strategy. While it makes sense to prioritize economic stability, today’s decision may catch many off guard, especially those who believe it's time to lower the base rate to boost growth prospects.”

In the real estate market, both homeowners and developers are grappling with the challenges posed by rising inflation and elevated interest rates. Homeowners are confronting the steepest mortgage rates seen since the financial crisis, while developers are struggling to secure the financing they desperately require.

That being said, it's a crucial time for investors to evaluate their portfolios, especially with the expectation of base rate cuts later this year. The real estate market still shows great promise, and alternative investments could provide worthwhile chances to diversify and explore new paths for growth.

Paresh Raja, the CEO of Market Financial Solutions, stated, “The core data from yesterday’s CPI report has eliminated any expectations for a rate reduction today. However, this development gives investors a chance to get ready for a potential increase in market activity. In fact, this decision coincides with the ongoing rise in housing prices, and with economists predicting that the Bank of England will lower the base rate in the upcoming meeting, we anticipate a boost in demand during the fourth quarter.”

Considering this, real estate investors and their agents should take the upcoming month to strengthen their investment holdings and develop a solid plan to take advantage of any chances that might arise from a more accommodating financial climate. Being able to act quickly will be essential as market activity increases, so it's equally important to have the appropriate financial resources available.

Lenders have an important part to play here, and it’s crucial that their products can adapt to the changing needs of investors and a possible increase in demand. By doing this, they can help support the market's recovery following a tough few years.

Tony Hall, the Head of Business Development at Saffron for Intermediaries, shares his thoughts: “Just two months back, we were discussing whether 2024 would mark the first reduction in interest rates in four years. Although the base rate remains unchanged today, there's speculation that we could see two more cuts before the year wraps up, leading to an increase in activity within the mortgage market. The supply levels are healthy, with new sales instructions rising by 7% in August compared to the average from 2017 to 2019, indicating that we can expect heightened activity for the rest of the year.”

The October budget is expected to shed light on the market's long-term outlook. It’s clear that confidence is growing, and the upcoming autumn months will likely thrive due to decreasing mortgage rates. Anyone planning to make the most of this time should seek expert guidance. Each buyer, seller, and builder has different financial circumstances, and brokers can assist in connecting them with lenders that meet their specific requirements.

Joe Pepper, the CEO of PEXA in the UK, expressed his views on the recent base rate decision, stating that while it's disappointing for borrowers, it was anticipated given the inflation data released yesterday. He noted that we now wait with anticipation for the next Monetary Policy Committee meeting in November, which will also depend on how the market responds to the Labour government's first budget.

Regardless of whether the interest rate drops in November, we can expect a significant increase in demand during the last two months of the year. This surge is largely due to millions of individuals nearing the end of their fixed-rate agreements. Additionally, the upcoming Budget is likely to highlight the government’s commitment to tackling challenges in the property market, driven by the economic advantages that come with it. As a result, there will be an influx of consumers, which will inevitably strain the already overwhelmed conveyancing system that is not prepared to cope with this demand.

Revamping the back-end systems and technology is essential for tackling this issue. While private investment is key, achieving effective nationwide results also requires robust support from the government. It's crucial that various sectors come together and work collaboratively towards modernization, and the need for this change is urgent.

Nathan Emerson, the CEO of Propertymark, said, "Ever since the first rate reduction a few months back, many have been eagerly watching for any additional cuts. However, it's important for the Bank of England to carry out any reductions carefully and effectively to avoid undoing the economic advancements we've made so far."

Considering the inflation numbers released yesterday, it's clear why the choice was made to keep the interest rates as they are. Propertymark continues to emphasize the importance of a consistent overall economy, hoping that any future reductions in the base rate will pave the way for people to achieve long-term stability, confidence, and affordability.

Guy Gittins, the CEO, remarked, "Homebuyers across the country were likely anticipating another rate decrease today. They had already reacted positively to the first cut in four years that was announced at the beginning of August."

Since that time, more buyers have been entering the market, as indicated by stronger mortgage approval rates. They're approaching this process with much more confidence, which is contributing to a steady rise in home prices.

"Although interest rates have remained unchanged today, the growing positive momentum in the market is expected to keep improving. With mortgage rates on a downward trend, the property market is well-positioned for the rest of the year."

Nick Hale, the CEO of Movera, a prominent group in the home-moving industry, stated: “The Bank of England’s choice to maintain the base rate at 5% brings some stability, which isn't all bad news for the surveying industry. Although home buyers are still facing affordability issues, a steady base rate creates a more predictable market environment. This allows both buyers and lenders to strategize with greater confidence, which in turn can help the housing market stabilize.”

In the surveying industry, the emphasis will still be on precise valuations and risk evaluations. However, as the market stabilizes, there’s a chance to adjust to the new standard. The ongoing interest rate scenario allows surveyors to enhance their practices and guarantee that they deliver the most trustworthy information to both purchasers and lenders.

The pressing question now is: how will the industry keep finding new ways to assist home buyers in a market where interest rates are high but consistent?

Mark Michaelides, Molo’s Chief Commercial Officer, stated: “The Bank of England's choice to maintain the base rate at 5%—even after Wednesday's positive headline inflation figures and the Federal Reserve's recent 50 basis points cut—shows that they are still cautious due to ongoing inflation challenges in the services sector. That said, we anticipate additional rate reductions this autumn, which should offer immediate benefits to current borrowers with variable rates and those searching for new fixed-rate options.”

Jonathan Samuels, the CEO of Octane Capital, stated, “The mortgage industry has reacted positively to the stability in the market that came after the Bank of England decided to maintain interest rates at 5.25%. This optimistic mood has only strengthened with the recent decrease in the base rate at the beginning of last month.”

Consequently, we are witnessing a decline in the rates available for various products, while at the same time, the variety of products on offer is expanding. This increased selection is enabling more potential buyers to participate in the market.

The choice made today to keep interest rates at 5.00% is not expected to dampen the increasing optimism in the market. We anticipate that more buyers will feel encouraged to return, and the overall condition of the UK housing market is likely to keep improving.

Arjan Verbeek from Perenna stated: “Although there are indications that the UK economy is starting to bounce back, the Bank of England's choice to keep interest rates steady will probably let down numerous consumers who were hoping for a reduction. As the average property prices in the UK keep increasing, it has become even more difficult for families to obtain a sufficiently large mortgage.”

If we consider homeownership as an important indicator of economic progress, it's evident that the UK is lagging behind many other European countries. Despite having some of the finest properties available, many people struggle to purchase a home. To bring homeownership back to the high levels we saw nearly twenty years ago, we need to broaden the range of mortgage options available, such as long-term fixed-rate mortgages. This would provide individuals with more choices, greater stability, and the flexibility necessary to achieve their dream of homeownership.

Kevin Roberts, Managing Director of Legal & General Mortgage Services, shares his thoughts on the recent decision regarding the base rate: “This choice reflects the careful strategy we've seen from the Bank of England throughout the year. Nonetheless, the mortgage sector is set for a strong finish in the last quarter. We're witnessing the reemergence of mortgage options with rates below 4% for the first time since April, and there is an upswing in available properties, with the average count per estate agency reaching its highest level since 2014. To capitalize on these developments, it's essential for buyers or those looking to move to consult with a professional adviser to secure the best possible deal. Brokers can access a wider selection of products and leverage their expertise to guide buyers toward the most suitable rates, products, and terms.”

Ryan McGrath, who leads the Second Charge Mortgages division at Pepper Money, shares his thoughts: "Even though the U.S. recently lowered its interest rates to create some excitement, the Bank of England decided to keep its rates steady after reducing them six weeks ago, indicating persistent inflation concerns. While many might have wished for another rate drop, this decision brings a sense of stability that is likely to strengthen the encouraging trend we've observed in the property market since the last rate cut and the end of the elections."

As we approach the time of year that's typically the most hectic and costly, it's only natural for everyone to think about their financial situation and any adjustments they might want to implement in the upcoming year. High amounts of unsecured debt can put a lot of stress on finances during this time, and with interest rates remaining steady, taking out more loans might not be an option. For homeowners, exploring secured credit options like homeowner loans can help lower monthly expenses by consolidating debts or financing renovations. When appropriate, a homeowner loan can provide a flexible and often more affordable alternative.

John Phillips, the CEO of Just Mortgages and Spicerhaart, commented on the recent decision, stating that it was anticipated given the cautious stance that the Bank of England is maintaining. While the news that inflation has stayed stable would have likely relieved the central bank, it wasn't sufficient to prompt a shift toward making cuts more frequently. Additionally, the significant interest rate reduction by the Federal Reserve the night before did not serve as a strong influence either, despite the Bank of England's usual inclination to follow in their footsteps. However, the overall outlook suggests that a rate cut could happen in November, unless there are unexpected developments or economic shocks, whether locally or internationally.

"Despite the lack of another rate cut, market activity remains strong. Lenders across various sectors are adjusting their rates and criteria to attract new customers and gain a larger share of the market. From what we've observed, clients have been receptive to these market changes and are returning from summer ready to move forward with their plans to buy or sell homes. The most effective brokers are already adapting to this dynamic, actively helping their clients understand the market and take advantage of the opportunities available."

Richard Pike, the chief sales and marketing officer at Phoebus, commented, "Given that the UK economy is barely moving forward and inflation is expected to rise again as the year comes to a close, today's decision by the Committee is not unexpected. With markets estimating a one-in-five likelihood of a Bank Rate reduction, this choice aligns with those predictions and is unlikely to significantly affect product prices."

"However, many lenders have been delaying decreases in fixed rates for as long as possible, so we can anticipate more competitive pricing ahead. I believe we'll see a change in November, as Markets are forecasting a 0.25% cut in the Base Rate."

Daniel Austin, the CEO of ASK Partners, a property investment company, remarked, “The Bank has chosen to maintain interest rates as anticipated following yesterday's inflation report. Although this decision doesn't offer immediate advantages to mortgage borrowers, we've noticed that mortgage lenders have been significantly reducing their rates lately. This stability in the market has led to borrowing levels approaching a peak not seen in nearly two years.”

"Regarding investments, we've seen a careful rise in funds flowing back into the real estate sector. The recent decision will be a positive development and could help ease some of the concerns among investors as we approach the Autumn Budget and the possibility of additional tax increases."