Interest rates unchanged but it’s not the end for house price drops

The Bank of England has held off on further interest rate rises for now but agents warn that there is still further for house prices to drop.

The cost of borrowing had been raised for 14 consecutive months between December 2021 and August 2023 from 0.1% to 5.25% in an effort to tackle high inflation.

At the same time, average mortgage pricing has risen above 6%, hitting buyer budgets and pushing house prices down as the market slows.

But inflation has been easing recently, prompting the Bank of England to hold interest rates at its latest meeting yesterday.

The central bank said there were signs that the rate rises were hitting the economy and the labour market.

Commenting on the announcement, Lucian Cook, head of residential research at Savills, said: “The Bank of England’s decision to maintain the current base rate is an important signal to the mortgage markets and should take some of the edge off the affordability pressures buyers are currently facing.

“However, a material improvement in mortgage affordability requires the prospect a cut in interest rates coming onto the horizon. That still looks some way off, suggesting buyers’ budgets are going to remain constrained and that there is a little way to go before house prices bottom out.”

Richard Donnell, executive director of Research at Zoopla, said this will be welcome news to homebuyers.

He added: “There has been some softening in mortgage rates but as long as rates stay over 5% then house prices will continue to fall. The concern is that money markets expect base rates to stay higher for longer in the face of higher inflation which will keep two and five-year fixed-rate mortgage rates higher.

“As we saw this Spring, mortgage rates in the low 4% range would bring buyers back into the market but this would require money markets to expect base rate cuts rather than an ending to further base rate increases.  

“Today’s homebuyers and remortgagors are taking what they will hope is short-term pain to get a better, lower, rate in two years' time with 40% of new mortgages being taken at the higher 2-year fixed rate.”

Nathan Emerson, chief executive of Propertymark, added: “It’s positive to see that the bank rate has remained unchanged this time around and will be reassuring for those looking to enter the housing market especially. 

“This now indicates that rises to interest rates have been impactful and that the fall in house prices has helped to even the affordability playing field and keep the wheels of the housing market turning.”