Experts hopeful this isn't the last cut of the year but Bank's MPC warns fast-rising food prices could drive up inflation
The Bank of England (BoE) has reduced its base rate by 25 basis points to 4% on Thursday, a decision that was widely expected by markets. However, industry experts say the move is unlikely to significantly affect mortgage costs for home buyers or provide a lift to house prices.
“While today’s cut in the base rate is welcome news for businesses and consumers, it’s unlikely to make a major difference to the cost of mortgages for home buyers or deliver a boost to house prices,” said Richard Donnell (pictured far left), executive director at Zoopla. “The price of fixed rate mortgages already factors in the future path of base rates, meaning average mortgage rates are likely to remain broadly where they are today.”
Donnell noted that recent changes to mortgage affordability assessments have already increased borrowing capacity for many buyers, supporting stronger than usual housing market activity. “This cut to the base rate will support more positive housing market sentiment among homebuyers,” he said.
“Lenders are offering very competitive mortgage deals so it’s important homebuyers talk to a mortgage broker to understand what they can afford and what this latest cut means for their home buying decisions.”
John Phillips (pictured second from left), chief executive of Just Mortgages and Spicerhaart, also believes that today’s base rate cut had already been anticipated by many lenders.
“There’s no doubt that many lenders will have already factored this into their pricing, but it remains a powerful piece of good news for brokers to be sharing with potential clients,” Phillips said.
“While we’ve certainly seen some bold rate predictions for the rest of the year and beyond – with some predictions of three more cuts – I’m hopeful this isn’t the last one we’ll see this year as inflation hopefully turns a corner and the central bank prioritises the health of the economy.”
Joe Pepper (pictured second from right), UK chief executive officer at PEXA, agreed that the BoE reduction would have little effect on most existing mortgages.
“Those on interest only or tracker mortgages will see their rates drop, but those on fixed rates will not see any change because the cut was predicted and has already been priced into the market by lenders,” he pointed out.
Pepper, however, added that for first-time buyers and those remortgaging, the environment is more favourable than a year ago. “For first-time buyers and remortgagers still looking for the best deal, though, it is good news – as swap rates have fallen in anticipation of today’s news, fixed rates have followed suit so someone looking to secure a mortgage now could benefit from a significantly lower rate than they would have encountered this time last year.”
For Matt Smith (pictured far right), mortgage expert at Rightmove, the rate cut would still likely prompt some lenders to make small reductions to their rates. “We expect that lenders will use the headline of today’s cut as the catalyst to reduce their rates a little further, though lender competition remains fierce and we don’t expect major rate drops.
“The market expects there will be one more bank rate cut before the end of the year, with an outside chance of two. Any further cuts would likely see this cycle repeat again – with lenders using it as an opportunity to reduce rates a little more. It bodes well for the second half of this year, with further mortgage rate reductions and stable prices likely to encourage more activity.”
While the 25bps cut was widely welcomed, concerns are still simmering. The Bank's decision was one of its closest since its independence more than 25 years, according to a report in The Guardian, with its monetary policy committee (MPC) voting to cut by 5-4. Andrew Bailey, the Bank's governor, said: “We’ve cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.”
In particular, the MPC warned that fast-rising food prices are weighing on the economy and said food price inflation was on track to reach 5.5% before the end of the year. It said this was caused by global factors like extreme weather events but also "material” rises in employment costs and new charges for recycling packaging, both driven by the current UK government.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
