Home Property Finance & InvestmentMortgages Bank of England pause interest rates after fall in inflation – property market expert reacts 

Bank of England pause interest rates after fall in inflation – property market expert reacts 

by LLP Finance Reporter
21st Sep 23 1:13 pm

The Bank of England has kept interest rates unchanged for the first time in almost two years on Thursday because “inflation has fallen.”

The bank has also downgraded the outlook for the economy, but officials cannot promise any further rises in the future and will “take the decisions necessary.”

The Monetary Policy Committee (MPC) met on Thursday and this is the first time since November 2021 they have not raised the base rate.

The Office for National Statistics (ONS)  said this week that the consumer price index (CPI) inflation had fallen in August.

The ONS revealed that inflation in August was 6.7% which was from 6.8% in July.

Group Chairman of Cornerstone Tax, David Hannah said, “I am relieved to see that the Bank of England has decided to pause interest rates and keep them at 5.25%.

“It wouldn’t have made sense for them to increase them by 0.25%, given the fact that we have seen a positive decline in inflation. The past interest rate increases have had a detrimental effect on Britain’s property market, most notably a significant reduction in property transactions, due to the fact that the cost of mortgages has skyrocketed as a result.

“However, if the BoE continues to see a notable drop in inflation like we witnessed in August, then I believe it will be an incentive for them to start lowering the base rate in the run-up to Christmas. This would mean a huge boost for consumers to start spending ahead of the holidays, bolstering Britain’s economy, and trickling down to create an even bigger boost for the property market. If this comes to fruition, we will witness a resurgence of first-time buyers returning to the market as mortgage interest rates fall.”

The Bank of England (BoE) has decided to pause interest rates after fourteen consecutive raises, keeping the rate of inflation at 5.25%. The primary factor for the BoE’s decision can be attributed to official data from the Office for National Statistics (ONS) released yesterday, which reported that inflation fell unexpectedly to 6.7% in August, its lowest level in over a year.

The BoE’s decision will also come as welcome news for the 1.5 million households coming to the end of their fixed rate mortgages this year. Many were cautiously waiting ahead of the interest rate rise to see whether they would be forced to sell their homes, as a result of a potential fifteenth interest rate rise Currently, the average 5-year fixed-rate mortgage is sitting at 5.97%, which is 2.46% higher than in August 2022.

CEO of Octane Capital, Jonathan Samuels, said, “The latest figures released this week suggest that inflation is now starting to ease. This is why the base rate has been left unchanged and will no doubt be heralded as proof of success by the Bank of England with respect to their approach to managing the economy.

However, it’s fair to say that had they acted with greater speed and intent, the rate of inflation wouldn’t have maintained such a stubborn trajectory in the first place.

Previous incremental increases to the base rate simply haven’t been effective enough and, as a result, the financial hardship felt by many households has been unnecessarily prolonged.”

Jason Ferrando, CEO of easyMoney said, “Yet another base rate increase may have been viewed as overkill due to the fact that inflation has started to ease in recent months, but it’s fair to say that the job is far from done and so many will argue that a freeze perhaps wasn’t the right path to take today.

We’re yet to see prices actually fall and it’s simply the speed of increase that has reduced. So it would be a shame for the Bank of England to fall asleep at the wheel now, just as they were starting to make some progress.”

Director of Benham and Reeves, Marc von Grundherr added, “Today’s freeze will be a small victory for the nation’s homebuyers who have seen the financial goal posts move constantly in recent months. But despite rates remaining unchanged there will still be a real worry for those coming to the end of a fixed rate term, having previously locked in at a relatively affordable rate when they first purchased.

When their mortgage term does expire, they are likely to find that the cost of their monthly repayments has risen considerably and this is really the last thing anyone wants to contend with, not only with the current cost of living, but with Christmas just around the corner.”

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