The mortgage industry was disappointed but not surprised to see the Bank of England hold interest rates today.
The Bank’s nine-strong Monetary Policy Committee voted 7–2 to maintain Bank rate at 4%, with two external doves, Swati Dhingra and Alan Taylor, pressing to cut the interest rate by a quarter point to 3.75%.
The committee notes in the minutes of their meeting that inflation has fallen from its peak of 11.1% in October 2022, after the pandemic and the supply chain shocks it sparked.
But adds that the cost of living was 3.8% in August, “and is expected to increase slightly in September, before falling towards the 2% target thereafter”.
The committee “remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process”.
Annual wage growth excluding bonuses came in at 4.8% in May to July earlier this week, down slightly from 5% in the previous three months.
The minutes add that underlying UK GDP, which saw zero growth in July following a 0.4% expansion in June, “has remained subdued, consistent with a continued, gradual loosening in the labour market, as well as a margin of slack in the economy.
“Downside domestic and geopolitical risks around economic activity remain.”
Santander UK chief economist Frances Haque holds out little hope of another base rate cut this year.
Haque says: “The minutes suggest that the bar for further reductions in Bank rate this year remains high.
“Yet the mortgage market continues to show resilience — last week brought a notable increase in overall market size, with approvals holding firm.
“Coupled with Office for National Statistics data showing house price growth slowing and mortgage pricing staying close to recent lows, conditions this year appear to be firmly in favour of buyers.”
However, SPF Private Clients chief executive Mark Harris makes the case for a rate cut.
Harris says: “With speculation surrounding what property taxes might be introduced in the November budget, resulting in discretionary buyers and sellers taking a ‘wait and see’ approach, a rate cut would have been a shot in the arm for the housing market.
“Now that the stamp duty concession has ended, and with affordability concerns persisting despite five rate reductions in the past year, further rate reductions are necessary to boost not only the housing market but the wider economy.”
Building Societies Association head of mortgage and housing policy Paul Broadhead adds: “For many would-be first-time buyers, another Bank rate cut couldn’t come soon enough.
“Despite the availability of innovative mortgages from building societies to help those with smaller deposits, and recent regulation changes enabling lenders the flexibility to lend to more borrowers, mortgage affordability remains one of the biggest barriers to homeownership.
“Our research shows 61% of first-time buyers citing this, with mortgage repayments for new buyers around 30% higher than five years ago, rising from 18% to 22% of income.”
John Charcol mortgage technical manager Nicholas Mendes argues that the Bank sitting on its hands will mean subdued movement on mortgage pricing.
Mendes says: “A hold is already in the price, so I do not expect major reductions or a new wave of competitive repricing before the next couple of meetings.
“Best buy fixed rates are likely to move sideways with only modest tweaks as swaps ebb and flow, while trackers are unchanged on the day.”
The MPC also voted by a majority of 7–2 to reduce the stock of government bond purchases held for monetary policy purposes by £70bn over the next 12 months to £488bn.
MPC base rate vote:
Seven members — Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine L Mann, Huw Pill and Dave Ramsden voted hold
Two members — Swati Dhingra and Alan Taylor voted to cut Bank rate by a quarter point to 3.75%
