Base Rate held at 3.75%: Stability, but no immediate reset for the housing market
For the housing market, the decision provides a degree of stability, rather than immediate relief.
The most important transmission point remains the swap market. The Bank previously noted that UK two-year overnight index swap rates had risen by approximately 70 basis points following the energy shock linked to developments in the Middle East, while quoted two-year fixed mortgage rates were around 80 basis points higher.
As a result, mortgage pricing continues to be influenced less by the current level of base rate than by market expectations for its future direction.
A cautious economic backdrop
The wider economic data gave the Committee reason to remain measured:
- CPI inflation eased to 2.6% in June;
- unemployment was estimated at 4.9% in the three months to May;
- vacancies continued to decline;
- private-sector regular pay growth moderated to 2.9%; and
- GDP increased by 0.7% in the three months to May.
Taken together, these indicators point to a gradual easing in inflationary and labour-market pressures, while economic growth remains positive. However, the Committee is likely to require further evidence that these trends are sufficiently established before changing course.
What this means for borrowers and advisers
For professional advisers, the practical message is that borrower planning should remain selective and structure-led.
Motivated buyers and well-capitalised clients can continue to transact, but affordability remains sensitive to relatively modest movements in mortgage pricing. This is particularly relevant for clients with larger borrowing requirements, complex income, investment assets or non-standard financial circumstances.
Those approaching a purchase, refinancing or portfolio decision may therefore benefit from reviewing their position before assuming that a future reduction in base rate will automatically translate into materially lower mortgage rates.
The next key indicators will include forthcoming inflation data, the persistence of energy-related price pressures, wage-setting trends and the direction of short-term swap rates.
Our view
The decision is supportive at the margin, as it avoids a further direct shock to borrower confidence. However, it does not materially change the outlook for the housing market.
Until lower interest-rate expectations are reflected in wholesale funding costs and mortgage pricing, any recovery in sentiment and transaction volumes is likely to remain gradual.
At Henry Dannell Private Clients, we work alongside professional advisers to structure borrowing for clients with complex income, significant assets, international considerations or non-standard requirements.
Please contact our team where a client may benefit from an initial review of their borrowing position.
This communication is intended for professional advisers and does not constitute personal financial advice. A mortgage is secured against property. The property may be repossessed if repayments are not maintained.