Bank base rate held in “close call”

Sat 06 Nov 2021

The Bank of England voted to hold the base rate at 0.1% yesterday – despite rumours they would finally raise it.

The Bank’s Monetary Policy Committee decided to hold the base rate by 7-2.

Afterwards Bank Governor Andrew Bailey said the decision was a “close call”, adding that the next rate rise is coming “from now onwards”.

The next base rate decision will be on December 16, and few would bet against a rate rise happening then.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The Bank’s decision to hold rates comes as a surprise, with the markets pricing in an increase this month and at least a couple more by the end of next year.

“Lenders have already been raising their cheapest mortgage rates in response, with very few products available at less than 1%.

“This could turn out to be a short reprieve, with a rate rise set to come at some point.

“With the vast majority of borrowers on fixed-rate mortgages, they won’t see any difference to their monthly payments should rates rise. But those on variable rates will see an uplift to their monthly costs, so it is worth planning ahead.

“Borrowers concerned about rate rises should consider securing a fixed-rate deal sooner rather than later. Unfortunately, history shows that it is only after the second or third base rate rise that borrowers tend to make their move, by which point new mortgage deals are much less competitively priced.”

Tomer Aboody, director of property lender MT Finance, said: “With interest rates so low for so long, boosting the UK economy and helping fuel the housing market by pushing property prices to their highest-ever levels, an upwards adjustment is on the cards; if not now, then in coming months.

“Any increases are likely to be gradual and over a period of time, helping keep inflation in check, as well as dampening down the prospect of future house price increases. This would be welcome, as the housing market has been frenetic.

“Banks and institutional mortgage lenders are still very much liquid, so competition on mortgages will still be high, even if interest rates rise. There may not be the plethora of sub-1% deals, with many lenders pulling these already, but mortgages will still be affordable and on the relatively cheap side.

“The Bank may have held fire too now realising that raising rates too soon would cripple mortgage borrowers on variable rates, along with others who are coming up to their term end and needing to refinance.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “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.”