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Bank of England Holds Interest Rates Steady at 5.25%

The Bank of England, under the leadership of Governor Andrew Bailey, has once again opted to maintain the base interest rate at 5.25%, a 16-year high, following a 7-2 vote by the Monetary Policy Committee (MPC).

Impact of Rate Decision on Market Dynamics
Despite inflation dropping to its lowest in over two years, the Bank has decided to freeze the rate, prompting concerns about the ongoing impact on mortgage costs. Governor Bailey has stated that the interest rate will only be reduced once inflation is clearly under control. This decision comes amidst increasing mortgage rates from major lenders, adding pressure to home buyers and those looking to remortgage.

Mortgage Rate Trends and Market Reactions
Rightmove’s latest data reveals that mortgage rates continue to climb, with the average 5-year fixed rate now above 5% for the first time since January, currently at 5.02%, up from 4.56% a year ago. Similarly, the 2-year fixed rate has increased to 5.41% from 4.84%.

Nathan Emerson, CEO of Propertymark, remains optimistic: “As interest rates continue to remain the same in order to combat levels of inflation this country has not witnessed for decades, Propertymark is optimistic that buyers will continue to adapt to these new market conditions.” He noted an increase in potential buyers and rental property availability, suggesting a recovery from recent economic shocks.

Perspectives from Industry Experts
Tom Bill, Head of UK Residential Research at Knight Frank, noted, “UK housing market activity has improved this spring, but there is still a sense of hesitancy among buyers and sellers as they wait for the first rate cut in four years.” Bill anticipates a modest rise in UK house prices by 3% this year as inflation eases and borrowing costs potentially decrease later in the year.

Ben Thompson, Deputy CEO of Mortgage Advice Bureau, highlighted the ongoing challenges: “With the Bank of England sitting on its hands again, borrowers will have to wait that bit longer for the first base rate cut since 2020. Inflation falling slower than expected has put the brakes on, with policymakers waiting for signs that the cost of living crisis has been shaken off.”

Kate Steere from pointed out the need for stability in the housing market, stressing that lowering the base rate could encourage more market activity. “The housing market is begging for some stability, and the most effective way to get these rates under control and encourage more activity in the market is to lower the base rate.”

Sarah Thompson, Managing Director at Mortgage Scout, acknowledged the cautious approach: “The Bank of England’s decision to maintain the current base rate reflects a cautious approach amidst ongoing global uncertainties… While this may not bring the immediate relief to mortgage borrowers that we had hoped for, it is important to remember that stability can also be beneficial in these volatile times.”

Kevin Shaw of Leaders Romans Group criticised the decision, describing it as a missed opportunity to stimulate economic growth: “Maintaining the current base rate is a missed opportunity to stimulate economic activity… high mortgage rates will exacerbate affordability issues for those getting onto the property ladder or renewing fixed-rate mortgages.”

The decision to hold the base rate steady reflects a cautious stance by the Bank of England, with mixed reactions from industry experts about its impact on the housing market and broader economic recovery.