Bank of England Pauses Interest Rate Hikes, Relief for Mortgage Borrowers but Uncertainty Remains
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The Bank of England (BoE) has decided to maintain the current base interest rate at 5.25%, marking a pause after 14 consecutive hikes. The decision on Thursday, September 21, 2023, offers some respite to mortgage borrowers and is the first time since November 2021 that the central bank’s monetary policy committee has not raised the base rate.
The decision comes in the wake of an unexpected dip in inflation to 6.7% and concurrent reductions in mortgage rates by lenders, with some deals now offering rates below 5%. Karen Noye, a mortgage expert at Quilter, suggested that the BoE was trying to balance supporting economic growth and containing inflation.
However, the relief may be short-lived for many homeowners. According to UK Finance, around 800,000 fixed-rate mortgage deals are set to expire in the second half of this year, and an additional 1.6 million are due to end next year. As these deals come to an end, homeowners will need to secure new deals at higher rates due to previous rate increases.
Consumer group Which? highlighted concerns for homeowners due to exiting their fixed-rate deals around Christmas when financial pressures often increase. The group warned that around half a million homeowners are set to transition from their fixed-term deals during this period, potentially leading to significant increases in monthly repayments amid a cost-of-living crisis.
Despite the pause in interest rate hikes, property professionals and mortgage experts warn that affordability pressures remain. Lucian Cook, head of residential research at estate agent Savills, noted that a significant improvement in mortgage affordability would require the prospect of an interest rate cut, which seems unlikely in the near future.
The property market reacted positively to the rate pause, with Jeremy Leaf, a north London estate agent, stating that this stability brings welcome reassurance to the market. Andrew Montlake, managing director of UK-wide mortgage broker Coreco, suggested that the pause might signal the peak of the interest rate cycle and could encourage more buyers back into the market.
The impacts are also being felt by renters, with private rental prices paid by tenants in the UK rising by 5.5% in the 12 months to August 2023, according to Office for National Statistics (ONS) figures. This increase is the largest annual percentage change since UK-wide records began in January 2016.
Meanwhile, savers have been benefiting from jumps in cash savings rates as the base rate has increased. However, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that the best deals might not be available for much longer.
