Uncertainty persists in housing market as base rate held steady

The Bank of England’s Monetary Policy Committee (MPC) has decided to maintain the UK base rate at 5.25%, despite recent inflation figures meeting the BoE’s target. With the General Election just two weeks away, the MPC voted 7 to 2 in favour of keeping the rate unchanged.

Inflation and Core Inflation Dynamics
Yesterday, the Office for National Statistics (ONS) announced that the Bank of England had achieved its 2.0% inflation target. However, core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, remains above 3.0%. This broader economic context influenced the MPC’s decision, aligning with many economists’ expectations.

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, commented, “Even after inflation hit the two per cent mark yesterday, the Bank of England has decided it’s best to continue its wait-and-see approach. The widely expected decision to maintain rates at a 16-year high won’t raise any eyebrows and mortgage rates will in all likelihood stay stable for the foreseeable. For first-time buyers and those looking to refinance, it is important to not be deterred by this. Now is the time to get mortgage ready so you are in the best position to take advantage of any future movement in mortgage rates.”

Expert Reactions and Market Implications
Nathan Emerson, CEO of Propertymark, emphasised the need for long-term confidence in inflation management. He stated, “For the housing market it is vital there is further confidence regarding the long-term trajectory of inflation, and this is a stance the Bank of England has remained very open about before any commitment is made to start reducing the base rate. Propertymark remain keen to see rates reduced when circumstances allow and for this to then translate into competitive mortgage deals from lenders at the first opportunity. We have seen much-needed progress since the start of the year regarding the housing market and it is vital that stability is maintained.”

Liz Edwards, money expert at personal finance comparison site finder.com, expressed concerns over the prolonged impact on potential buyers. “The Bank of England has once again made the decision to hold the base rate at 5.25%. Although this outcome was widely expected, the news will no doubt still come as a disappointment for homeowners and potential buyers across the UK. Many first-time buyers have been in a state of limbo over the last couple of years as they wait for borrowing rates to come down. In fact, figures show that the number of first-time buyers in the UK fell by a significant 21% between 2022 and 2023. Unfortunately, another base rate pause could continue to subdue buyer confidence, and it’s unlikely that we’ll see any real stability in the housing market until the base rate starts to come down and brings these volatile borrowing rates under control.”

Future Projections and Economic Strategy
Previously, experts were confident in predicting a rate cut for June or August, but now it appears this may be delayed until September. Edwards noted, “Although the BoE has finally reached its 2% inflation target, the challenge will be bringing the base rate down without triggering an inflationary spike. In order to avoid this, the BoE will no doubt be cautious when it comes to rate cuts.”

In summary, the Bank of England’s decision to hold the base rate at 5.25% reflects a cautious approach amidst political and economic uncertainties. While inflation targets have been met, the persistence of core inflation above 3.0% and the approaching General Election contribute to the decision to maintain the current rate, leaving potential homebuyers and the housing market in a state of continued uncertainty.