MORTGAGE borrowers have been warned not to expect cheaper deals after Bank of England’s (BoE) surprise 6-3 hawkish vote on its base rate today.
The Bank of England may have left its base rate unchanged at 3.75%, but experts say the biggest takeaway from today’s decision is that interest rates could remain higher for longer than many borrowers had hoped.
While the Monetary Policy Committee (MPC) voted by six votes to three to keep rates on hold, the fact that three members backed an immediate rise to 4% has been interpreted as a sign the Bank remains deeply concerned about inflation, despite signs that price pressures have eased.
The hawkish split has led many mortgage experts to warn borrowers against expecting cheaper mortgages anytime soon, with lenders already raising some fixed-rate mortgages in recent weeks as swap rates climbed amid renewed tensions in the Middle East.
Fixed-rate borrowers remain at the mercy of financial markets rather than the Bank’s headline rate.
Worrying
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said the number who voted for a rate rise is worrying for borrowers.
He added: “The headline is ‘no change’, but the message is ‘not yet’. With three members now voting for a rate rise, borrowers shouldn’t assume lower mortgage rates are just around the corner. The Bank appears less concerned about where inflation is today than whether it becomes persistent tomorrow.”
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, said hopes for rate cuts have dissolved.
He added: “The Bank of England held the base rate at 3.75% once again, which comes as no surprise to markets. The Monetary Policy Committee remains strictly cautious, heavily influenced by the ongoing, yo-yoing conflict in the Middle East. Energy price volatility and geopolitical instability keep inflation risks front and centre, giving rate-setters little room to maneuver.
“Looking across the rest of the year, initial hopes for rate cuts have dissolved. With hostilities in the Middle East likely to persist, expect rates to remain firmly on hold through 2026. This will keep property prices elevated, and mortgage transactions steady.”
Stability
Michelle Lawson, Director at Fareham-based Lawson Financial, said this only affects mortgage rates linked to the base rate.
She added: “This hold appears to be about the only bit of stability the economy has at the moment although there is a bit of wavering for an increase as the Middle East turmoil rumbles on.
“Be minded that this decision only affects mortgage rates linked to the Bank Base Rate, trackers for example, so there is no direct impact to fixed rates as these are priced on a different market.”
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said the wind is blowing towards a base rate increase later this year.
He added: “The Bank held at 3.75%, but lenders voted weeks ago. Swap rates have been climbing and plenty of lenders repriced upwards before the 6-3 vote even landed. Three members pushing for 4% tells you which way the wind is blowing. Remember that base rate only moves trackers directly.
“Fixed deals are priced off swaps, and swaps are watching the Middle East rather than Threadneedle Street. If you are within six months of your maturity date, secure a rate now. You can always switch to something cheaper if the picture improves.”
Adjusting
Craig Fish, Director at London-based Lodestone Mortgages, said a bumpy few months are ahead for mortgages.
He added: “A 6-3 hold at 3.75% hides a real shift. Three members now want a hike, up from two in June and one in April, and that hawkish drift makes waiting for cheaper fixed rates a risky bet. If your deal is ending soon, lock in now. For property, it’s business as usual, just slower than anyone expected in January.
“The market isn’t stalling, it’s adjusting, and that’s taking longer than hoped. Expect a bumpy few months before it settles. Certainty now beats a maybe later.”
Rohit Kohli, Director at Romsey-based The Mortgage Stop, said the housing market needed a cut.
He added: “The hold was the easy option, and the MPC took it. Inflation easing more than expected gave them cover to sit on their hands, but the pressure hasn’t gone away. Oil prices are surging again on the back of renewed Middle East tensions, and that’s exactly the kind of shock that can undo months of progress on inflation.
“A cut would have thrown the housing market a lifeline, but that was fantasy thinking, not a realistic outcome. The real worry isn’t this decision, it’s whether the Bank ends up boxed into holding rates higher for longer if energy costs keep climbing, or, worse yet, forced to raise rates to curb inflation.”
Expected
Anthony McQuilliam , Director at Bolt Mortgages, said the vote will raise fears of the base rate going up later in the year.
He added: “Holding rates at 3.75% will be welcomed by borrowers, but the split vote tells a much bigger story. Three MPC members still wanted to increase rates, which suggests inflation concerns haven’t disappeared. That means anyone expecting a string of rapid rate cuts could be disappointed.
“For the mortgage market, we’ve already seen lenders price in much of the expected easing through swap rates, so today’s decision is unlikely to trigger a dramatic change in mortgage pricing. The bigger issue is confidence. Stable rates give buyers and homeowners certainty, and certainty is often what gets people moving. Interestingly, this could create a short-term rush in activity.
“Buyers who have been waiting for lower rates may now decide not to gamble on future cuts and secure a deal while mortgage pricing remains competitive. In many cases, waiting for a slightly cheaper rate could mean paying more for the property if demand picks up.”
Rupert Collingwood, Founder at The London Broker, said this feeds into a sluggish property market.
He added: “The decision to hold was expected. As to how this impacts the property market? It will depend for the most part on how the lenders react. Last week we saw lenders increasing their mortgage rates as world events continue to impact projections regarding the direction of central bank interest rates.
“Any increase in interest rates impacts borrowers’ ability to purchase. With the housing market sluggish at best, this is unhelpful, that being said key domestic drivers will ensure transactions continue in what appears to be the “new normal” housing market. This means that vendors in particular need to be mindful of the prevailing wind to best position themselves and their property for a successful sale.”
Photo by Alfred Kenneally on Unsplash.
