The Bank of England Monetary Policy Committee’s (MPC’s) decision to hold the base rate at 4.75% was unsurprising given recent inflation figures, the industry has said.
After this week’s inflation data showed it was above the central bank’s target at 2.6%, industry commentators described the base rate decision as “cautious” and “measured”.
Gareth Lewis, managing director of MT Finance, said: “The MPC’s decision to maintain interest rates at their current level is a measured response to the complex interplay of inflation, economic growth, and market stability. By holding rates, the MPC is signalling continued vigilance regarding inflationary pressures while providing a sense of stability for businesses and investors. The decision suggests that while progress has been made in managing inflation, the economic environment remains too uncertain for immediate rate reductions.
“For the property market, this represents a moment of strategic patience. Lenders and borrowers can continue to operate within a predictable framework, allowing for measured investment and development strategies.”
Nathan Emerson, CEO of Propertymark, added: “With many national and international factors continuing to shape the global economy, the Bank of England is understandably taking a cautious path until they can be confident that they are able to safely reduce interest rates back. It has been encouraging to see interest rates reduced across recent months, but the base rate can only be reduced if all factors allow.
“High interest rates can, of course, affect borrowing for many people, especially those stepping onto the housing ladder, but it’s important there is sensible balance to keep the overall economy secure and workable for all.”
How to support young landlords
Sponsored by BM Solutions
Robin Rathore, CEO of Bamboo Auctions, said although the market may have been hoping for another reduction, the hold would help “maintain stability”.
No drastic changes in mortgage rates
Other industry figures said the base rate hold was unlikely to have a notable impact on fixed mortgage rates, as this was largely priced in by lenders.
Bamboo Auctions’ Rathore said: “In reality, banks have already priced today’s interest rate decision into their mortgage products and so I would be surprised to see any dramatic shifts in mortgage rates in the next month or so.”
Peter Stimson, head of product at MPowered Mortgages, said although swap rates had been rising, “we can expect to see some frenzied competition between mortgage lenders in January”.
According to Chatham Financial, the two-year swap was 2.25% as of 17 December, slightly up from 4.22% in November.
Over the same period, the five-year swap has risen from 3.99% to 4.01%.
Stimson added: “The first weeks of the year are traditionally an important time for lenders, with many slicing into their margins to offer lower interest rates in a bid to win new customers.
“While the base rate has only been cut twice in 2024, the prospect of three or more reductions in 2025 will embolden lenders to price very competitively at the start of the year as they battle for market share.”
David Hollingworth, associate director at L&C Mortgages, agreed, saying lenders would be “quick out of the blocks” next month and “continue to price as sharply as possible”.
However, he said the Bank of England had been “consistent in its tone, suggesting the likely pace of rate cutting will be gradual”.
Mark Harris, chief executive of SPF Private Clients, had an alternative view, suggesting that mortgage rates would “yo-yo over the next three months”.
Harris said although swap rates had fallen since the start of this month, these had been “wiped out over the past three days”.
“It is only when we start getting regular base rate cuts that the market will react favourably and swap rates will fall. Until then, swaps will continue to fluctuate as much as we have seen over the past 12 months, which makes it harder for lenders to consistently offer lower mortgage rates,” Harris said.
The base rate cuts will come next year
With the MPC vote split, with three members preferring a 0.25% cut, it was predicted that the next base rate reduction was not far off.
Sam Lindsay, mortgage and protection adviser at My Mortgage Angel, said: “All signs are pointing towards the base rate coming down – but not just yet. With the rebound in inflation and unrest across the world, the Bank of England will wait for this to stabilise before cutting rates any further. However, this hold is just a temporary fix, and we expect to see some downwards movement in the first quarter of 2025, and then further incremental drops throughout the year.”
Ben Nichols, managing director of RAW Capital Partners, said a reduction before the end of the year was “largely out of the question given the ongoing inflationary concerns”, but said that “fortunately, the outlook for further rate cuts in 2025 is far more promising”.
He added: “Governor Bailey recently suggested that the MPC is preparing to implement up to four reductions to the base rate next year. Given that inflation is unlikely to rise as sharply or for as long as it did two years ago, another rate cut could be on the cards as early as February, which would provide the property market with a welcome shot in the arm.”
Ben Allkins, head of mortgages and protection at Just Mortgages, said among the firm’s brokers and the lenders it worked with, the consensus was that 2025 would be positive for the market.
Allkins said challenges – particularly around affordability – would remain, but the base rate hold would provide “some stability, which is always well-received by the markets and by swap rates”.
“This may give lenders some leeway to make movements as they look to build their pipeline heading into the New Year,” he added.
