Base rate hold does not mean the end of ‘priced-in’ mortgage hikes – reaction
Today’s base rate hold will provide borrowers with little comfort, as lenders and the financial market expect the Monetary Policy Committee (MPC) to vote for a rise soon.
Nevertheless, the sixth consecutive hold was welcome, as Nigel Bishop, founder of Recoco Property Search, said a hike would have had a “crippling effect on an already stagnant property market”.
The decision will provide some relief to buyers and borrowers due a renewal, but “this feeling will only be momentary, as mortgage products have already gotten more expensive”.
Bishop said: “A hike in interest rates later this year is still very much on the table, but the Bank of England probably first wants to hear if next month’s Autumn Budget introduces any policies that tackle inflation.”
Inflation data this week showed a rise to 3.1% in August, and Julian Jessop, economic fellow at the Institute of Economic Affairs, said the MPC’s base rate decision was “understandable” but risked it being accused of “kicking the can further down the road”.
He added: “There are strong arguments against raising UK interest rates as far as the markets are currently expecting, including the weakness of the labour market and of broad money growth.
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“But a small increase now might have helped to safeguard credibility and reduce the need for larger increases later.”
When is the right time to tackle inflation?
Ben Allen, managing director of The Right Mortgage & Protection Network, said that the rise in inflation was in line with expectations and mainly driven by fuel, so the MPC concluded there was “not yet sufficient evidence that these inflationary pressures require another increase”, nor that it would bring inflation back to target.
However, Allen said the inflationary risks had not disappeared, so there was a question as to whether a base rate hike had simply been postponed.
Mark Harris, chief executive of SPF Private Clients, said after the US Federal Reserve and European Central Bank raised their rates, the “pressure was on Governor Andrew Bailey and the Monetary Policy Committee to follow suit, but they resisted”.
He said this cautious response was correct for now as it provided stability.
Anthony Curtis, director of mortgage broker Forto Finance, also noted that the rest of the G7 had reacted to rising inflation and said the UK was not “magically immune to the global oil shock”.
He said the MPC should have reacted, adding: “I’m surprised the bank didn’t increase rates. I should imagine many lenders feel the same way and have been pricing a rate rise in.”
While Curtis said the hold would provide stability, “people shouldn’t get too comfy”.
He added: “The hold decision means that next month, a rise is pretty much nailed on. This represents nothing more than a delay – a reprieve, even. Higher rates next month are now all but guaranteed.”
Higher mortgage rates to come
Allen said the hold felt “slightly irrelevant because change is taking place anyway”.
He added: “Swap rates and lender funding costs have risen, mortgage rates have been moving upwards and the widespread product price reductions we saw earlier in the year have become something of a distant memory, with some lenders having to reprice more than once in a week and advisers working increasingly hard to meet product and rate withdrawal deadlines for their clients.
“Attention will now turn to swaps, the future inflation outlook and, of course, the Budget next month and accompanying OBR forecast, as the country waits to see what those might mean for households, the economy and ultimately the mortgage market.”
Ryan McGrath, director of second charge mortgages at Pepper Money, emphasised this, saying the hold did not mean pricing would stand still.
He added: “Swap rates already reflect where the market expects the base rate to go, so lenders will keep adjusting their own products with or without a Bank of England move.”
Matt Smith, mortgage expert at Rightmove, agreed, saying: “Financial markets are still pricing in the possibility of further base rate increases in the months ahead, which means borrowers shouldn’t necessarily view today’s decision as a signal that mortgage rates have reached their peak.”
Harris said borrowers still had to contend with “an upward trajectory in mortgage pricing”, adding that mortgages were getting more expensive and impacting affordability, although swap rate rises had eased in recent days.
