Bottled It! Sigh of relief as Bank of England keeps base rate unchanged

The Bank of England’s monetary policy committee has defied expectations by keeping base rate at its historic low of 0.1 per cent.

The base rate - the country’s main interest rate - has been below 1.0 per cent for 12 years and was dropped to 0.1 per cent 18 months ago as Coronavirus gripped the nation and destabilised the economy.

Even if the BoE had increased the rate, it was expected to be small and having limited effect on the housing market.

Around 50 per cent of all homes are owned outright anyway, with no mortgage owed on them, and of the rest around three quarters have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends. 

The remaining two million owners are on standard variable rate mortgages or tracker mortgages so their repayments will go up as individual mortgage lenders increase their rates in response to the Bank of England announcement.

Despite its modest relevance to the housing market, there has been a sigh of relief from many agents and other industry players.

Tim Bannister, Rightmove’s Director of Property Data comments:“The expectation that they’re going to slowly start to rise may lead to some buyers accelerating their plans to move and secure a fixed term mortgage deal now, due to a fear of missing out on the historically low rates that were on offer.

“If interest rates do rise in the coming months, as expected, their effect on house prices in the short term may be muted by the ongoing high levels of demand we are seeing and the fact that interest rates will likely still be at levels well below historic norms.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Although a rise in interest rates would have had a modest impact as only a small proportion of borrowers are on variable-rate deals, the consequences for the housing market could have been much more significant.

“Activity and price growth has been slowing since government support schemes started winding down. An interest rate rise would compromise confidence for some, particularly first-time buyers on tight budgets concerned about the future direction of travel of rates. As the housing market is built on confidence, a rate rise, and perhaps two or three more to follow, would inevitably have an impact on activity.”

Simon Gammon, managing partner at Knight Frank Finance, adds: “”It's increasingly clear that a rate hike isn't far away. Borrowing costs are already rising in anticipation and mortgage rates suggest we are entering new territory for large numbers of borrowers. A fifth of all outstanding mortgage debt is at variable rates, which amounts to about £315 billion. That's a lot of borrowers that will soon see an increase in their monthly outgoings.

"Any rise in the base rate is likely to be small and measured. However, economists are predicting multiple rate rises during 2022, so we are advising borrowers to act quickly, even if they are locked into a deal. Mortgage offers can be held for six months, so it's worth speaking to an expert to see what's possible."