Bank of England reveals latest interest rate decision

The Bank of England’s monetary policy committee has announced its decision on base rate.

It will rise by 0.25 per cent to 5.25 per cent.

The last time interest rates stood at 5.25 per cent was 15 years ago in April 2008. 

However, today’s rise is a smaller increase than July's dramatic hike from 4.5 to 5.0 per cent and follows signs that inflation has begun to ease. Inflation fell by much more than expected in June and at 7.9 per cent is at its lowest level in over a year - but it is still almost four times higher the Bank of England's 2.0 per cent target.

Agents have given their reaction.

Matt Thompson, head of sales at Chestertons, says: “We expect the rate rise to have a particular impact on homeowners with a variable mortgage as well as overleveraged buy to let investors whose increased mortgage payments could result in their investment making limited profit or a loss. Although there still is a vast number of buyers wanting to move as soon as possible, rising interest rates are forcing house hunters to be more cautious, review their financial situation and calculate a more conservative budget. Whilst this has recently resulted in fewer new buyers entering the market, we expect activity to pick up again once buyers have adjusted their criteria and lenders are bringing more products to the market again.”

Emily Williams, director of research at Savills, comments: “We don’t expect this decision to have a significant impact on the mortgage market. Lenders began to price in further rate rises from early June, and swap rates have been falling since early July, even in anticipation of today’s rate rise. But affordability remains a concern for many, and is weighing on both prices and activity. The number of mortgage approvals in June was still at just 85 per cent of its pre-covid average, according to the Bank of England. This was accompanied by a fall in the number of sales agreed to 87 per cent of their pre-covid average in June from 97 per cent in May, according to TwentyCI, and points to the continued need for vendors to price realistically.

“For the remainder of the year, we expect the market will be dominated by those less reliant on mortgage debt. Consequently we expect the prime housing markets to outperform, seeing smaller price falls and a stronger recovery than their mainstream counterparts. While average UK values fell by 3.5 per cent in the year to June 2023, prime London values have only fallen by 1.0 per cent over the same period, according to Savills’ Prime Index, demonstrating the resilience of this part of the market."

-

The director of Benham and Reeves, Marc von Grundherr, states: “A fourteenth consecutive base rate hike will come as yet another nail in the coffin for the nation’s borrowers and will do little to boost a property market that has been treading water in recent months. We have seen some positive signs in recent weeks with mortgage approvals climbing. However, while this boost in market activity is good news, higher interest rates are likely to stifle the purchasing power of the nation’s buyers even more, resulting in the further stagnation of house prices.”

-

According to the managing director of Barrows and Forrester, James Forrester: “The nation’s borrowers will be forgiven for feeling like they are trapped in some sort of Bank of England Groundhog Day, with rates increasing for the fourteenth consecutive time today. The base rate is now the highest seen in over fifteen years and so the latest generation of buyers will no doubt be panicked by the steep cost of borrowing they face in the current market. The silver lining is that a lower rate of increase suggests that we could be nearing the peak and while we expect to see lucky number fifteen materialise, they could well plateau before the year is out.”