Interest rates held but agents pin hopes on falling mortgage pricing

Agents remain typically optimistic about the property market after interest rates were been held at their 16-year high of 5.25% by the Bank of England (BoE) yesterday.

It is the sixth consecutive monetary policy committee (MPC) where rates have remained frozen, but there is some hope of a cut in the coming months after two of the nine policymakers backed a reduction.

Lucian Cook, head of residential research at Savills, said: “The Bank of England’s decision to hold interest rates at 5.25% won’t come as surprise, as inflation remains high and uncertainty in the Middle East continues.

“This is in line with our forecast expectations that we are unlikely to see a further meaningful fall in mortgage rates this year, despite an improved overall outlook, with the potential for short term fluctuations in the cost of debt and house prices.

“However, the highly competitive nature of the mortgage market has meant that mortgage costs have already nudged down this year, and have been much less volatile. Combined with an improved outlook for economic growth, and increased buyer confidence, we can now expect modest house price growth this year.”

Nick Leeming, chairman of Jackson-Stops, said the expectation is that June’s meeting will finally break the base rate deadlock and initiate a rate cut.

He added: “The Bank of England’s hawkish approach may not be headline grabbing, but at least it isn’t a distraction for buyers or sellers who want to press on with their sales and searches. While everyone in need of a mortgage would prefer rates to fall significantly, interest rates of around 5% are not high by historic standards.

“It’s important to keep in mind that, while the past 18 months have been a time of economic headwinds, the exceedingly low rates that became the norm in the 2010s were the exception and not the rule.

“A pivot towards lower rates in June, even if only minor, would help to ease affordability constraints at the lower end of the housing market and help to ensure chains don’t break down once sales have been agreed.

“For now, the ‘hold’ should help to maintain the fragile momentum we've seen building in the housing market recently. Across the Jackson-Stops network in April we have seen a year-on-year uptick in viewings, new instructions and new buyer enquiries, which bodes well for a busier second half of the year.”

Nathan Emerson, chief executive of Propertymark, said: “As interest rates continue to remain the same in order to combat levels of inflation this country has not witnessed for decades, Propertymark is optimistic that buyers will continue to adapt to these new market conditions. 

“Our own Housing Insight Report discovered that there has been a 4% increase in the number of potential buyers registered, and an 8% increase in the number of available properties to rent, which shows that there are some reasons to remain optimistic that the housing market is recovering from shock economic factors from the past three years.” 

It comes as figures from banking trade body UK Finance showed a 3% rise in mortgage arrears among homeowners between the end of 2023 and the first quarter of this year.

The overall proportion of mortgages in arrears remains low, at 1.11% of homeowner mortgages and 0.69% of buy-to-let mortgages.