12:25 PM, 19th December 2024, About 2 hours ago 1
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With inflation now running above the 2% target rate at 2.6%, the Bank of England Monetary Policy Committee (MPC), voted by a surprisingly large split of 6 – 3 to hold the Base Rate at 4.75%.
This is counter to the Federal Reserve yesterday announcing a third reduction this year of 0.25% with a range of 4.25% – 4.5%.
The MPC said they were: “Monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. These developments have generated additional uncertainties around the economic outlook.”
“There was also uncertainty around how the measures that had been announced in the Autumn Budget were affecting growth. This included the extent to which companies would, over time, take account of the indirect spillovers to private demand from higher public spending, as well as the direct consequences of the increase in employer National Insurance contributions (NICs) that would take effect from April”
CPI inflation rose by more than forecast from 1.7% in September to 2.6% in November, because of higher prices for food, services and core goods.
Near-term market expectations for Base Rate have increased since the last meeting, predominantly reflecting stronger than expected wage data. Annual private sector average earnings growth was more volatile than predicted in the three months to October with settlements in the 3% to 4% range.
On the deflationary side the UK economy is now expected to show zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November MPC report.
The MPC summary on the UK housing market reported: “Activity had continued to pick up, with mortgage approvals for house purchase having risen back to their pre-pandemic average in October. That reflected, in part, declines in the average rate paid on new mortgages since quoted rates had peaked in mid-2023.
“Over the same period, however, the average rate paid on all outstanding mortgages had continued to increase as the majority of fixed-term mortgages were refinanced on to higher rates. As noted in the November Financial Stability Report, 37% of fixed rate mortgage accounts had not yet re-fixed since rates had started to rise in 2021 H2, so the full impact of higher interest rates had not yet passed through to all mortgagors.”
Nathan Emerson, chief executive of Propertymark, said: “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.”
Ben Nichols, Managing Director at RAW Capital Partners, said: “No early Christmas present, but a cut was largely out of the question given the ongoing inflationary concerns. Fortunately, the outlook for further rate cuts in 2025 is far more promising.
“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.”
“That said, higher borrowing costs will naturally weigh on property investors’ minds, even if underlying data relating to buyer demand and transaction levels is positive. Therefore, the onus remains on lenders and brokers to better support borrowers as they wait for the Bank of England to relax the monetary policy environment. I expect that flexible financial products, firm commitments, and transparent communication will continue to be vital qualities for lenders to provide in the months ahead as a result.”
Paresh Raja, CEO of Market Financial Solutions, said: “The Bank of England has long urged against lowering interest rates too quickly, so following November’s decision to cut the base rate, it was always highly unlikely that the MPC would do the same today. But that should not be seen as a negative. Instead, we have to see the bigger picture and reflect on the progress we have seen across the property and lending markets in 2024.
“Yesterday’s data from the ONS underlined that house prices and rents are rising, while interest rates have started to fall and are expected to come down further next year.
“Meanwhile, although new policies are creating challenges for landlords in the private rental sector, the fact that 2024 has brought in a new government with a sizeable parliamentary majority does bring a greater degree of political stability after several years of turbulence. Put simply, the market is in a stronger position today than it was 12 months ago, and this lays the foundations for some exciting opportunities for lenders, brokers and property investors alike in 2025.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “The lack of movement in base rate is not surprising given recent increases in inflation and wages as the Bank of England wants to see some stability before taking what it thinks is risks with the economy.
“However, as far as the property market is concerned, even a small cut in base rate would be welcome not just for those on fixed-rate mortgages who are facing considerable increases in their loans when they come to remortgage but also first-time buyers who are the engine of the market, wanting to escape from high rental levels and take advantage of reduction in stamp duty before 1st April.
“A reduction in mortgage rates is always helpful as it improves activity, which is good not just for those contemplating moving but for the wider economy.”
Stephanie Daley, Director of Partnerships at mortgage advisor Alexander Hall, said: “The Bank of England’s decision to hold interest rates at 4.75% comes as no surprise, given the current economic climate. With UK inflation rising to 2.6% in November – the second consecutive monthly increase – and core inflation climbing to 3.5%, there’s clear upward pressure on prices.
“For borrowers and homeowners, stability in the base rate this month goes hand in hand with the expectation of a very slow downward movement in the base rate.
“ Forecasts still expect future base rate drops next year but in the short term the sustained inflation trend will likely keep lenders vigilant and mortgage pricing reflective of longer-term uncertainties.
“It is essential for both home movers and remortgage clients to seek advice in order to navigate these challenges and find solutions that best suit their financial situations in what still remains a very changeable market.”
CEO of specialist lender Octane Capital, Jonathan Samuels, commented: “Whilst it’s been a largely positive year for the property market, we simply haven’t seen the base rate reductions that many had hoped for and, as a result, higher mortgage rates have remained a challenge for many borrowers.
“We’ve seen inflation rear its head again in recent months and so a hold was always going to be on the cards today. However, the silver lining is that we remain in a far more positive place than we did even a year ago and buyers should continue to act with a greater degree of confidence when traversing the market, as they have done for much of this year.”
Director of Benham and Reeves, Marc von Grundherr, said: “Not the Christmas cracker that many homebuyers were hoping for but not quite a lump of coal either and today’s hold on the base rate will do little to impact the current trajectory of the property market, particularly given the stamp duty deadline in place.”
Matt Smith, Rightmove’s mortgage expert says: “In a rollercoaster year for the mortgage market, we end the year with a hold in the Bank Rate at 4.75%.
“While not the early Christmas present that many would have wanted, it was widely anticipated, and must be considered against a backdrop of inflation being at the top end of forecasts, and wages have increased at a higher rate than expected.
“We don’t expect any reductions in mortgage rates over the next few weeks, but as we progress into 2025, lenders are likely to look at ways to take advantage of increased demand as the busier home-buying season starts. As we move towards the end of the Stamp Duty reduction, lenders are also likely to look at reducing rates wherever possible
“Next year, three Bank Rate cuts are currently planned rather than the four anticipated just a few weeks ago, highlighting how quickly things can change in the market. We predict average mortgage rates could trickle slowly down towards around 4.0% next year, though this is dependant on the impact of a wide variety of unpredictable factors, including geo-political tensions and inflation.”
Sarah Coles, head of personal finance, Hargreaves Lansdown: “The Monetary Policy Committee effectively shut up shop early for Christmas, keeping rates on hold, and the market is expecting the shutters to remain firmly closed to rate cuts for longer in 2025 too.
“There’s a double-blow for those on tracker rates – who won’t see their monthly payments drop in December, and can expect to wait longer in 2025 before rate cuts materialise too. There will be those who switched to a tracker at the start of 2024, who will have expected a raft of rate cuts by now, so the idea of just two in 2024 and as little as two in 2025 will be a major disappointment.
“For those looking for a fixed rate deal, the fact the market is pricing in fewer cuts between now and the end of 2025 means we’re likely to see mortgage rates rise slightly from here. Mortgage rates have fluctuated over the past month, as the market struggled to make its mind up about the path of future rate cuts.
“With so much uncertainty around, it can be a good idea for anyone with a looming remortgage to secure a rate now. If rates rise in the interim, they’ll have locked in a cheaper deal, but if they fall, they can shop around for something cheaper.”
Ryan McGrath, director of Second Charge Mortgages at Pepper Money, said: “With prices rising at their fastest pace since March, today’s announcement that rates will hold is not the Christmas present that some current and prospective homeowners may have been wishing for.
“Households with variable rate mortgages, or those who are looking to remortgage, will be particularly affected by market conditions not providing the stability that the Bank of England needed to move on rates.
“This reality means that homeowners on low fixed-rate mortgages will be eager to keep them. That’s where a second charge mortgage can be invaluable. For many, they provide an important chance to keep your existing deal, including the interest rate and term, and avoid early repayment charges but not have to put other parts of your life on hold.
“People who are looking to renovate their home, buy another property, or reduce monthly outgoings by consolidating debt should consider a second charge mortgage. These can also be useful if you need to pay an unexpected tax bill, like the farmers, small business owners and independent school fee-payers whose taxes will rise following the Autumn Budget.”
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Sign Up14:02 PM, 19th December 2024, About 42 minutes ago
Of course putting up NI leads to increased inflation (this is predictable of course because the economy is heavily dependent upon SMEs). Families will not be more able to afford their mortgage payments (or their rent payments) because more of the money they earn will go in tax. And because the rise in NI leads to inflation, interest rates go up and so do the cost of their mortgages.
SMEs are the biggest employers in the country. Not the public sector. Only the smallest employers are shielded from the increase. Policies like this both create a vicious circle and send a message to business. The message is not go-for-growth.