Bank of England pauses interest rate rises – consumer credit industry reaction

22nd September 2023

The Bank of England has announced that it has held interest rates at 5.25%, pressing pause on rate hikes after rising relentlessly since December 2021.

The news followed a surprise fall in inflation in August, despite rising oil prices, some weakness creeping into the jobs’ market, and the Federal Reserve in the US deciding to halt rate rises for the time being.

Commenting on the change, Richard Lane, Director of External Affairs at StepChange Debt Charity, said “With interest rates now looking likely to remain higher for much longer than might have been expected, housing costs have rapidly become the most significant pressure point for household budgets. Eighteen months ago many wouldn’t have envisioned facing such steep rises in their mortgage or rent payments. However, the rise in rates has now impacted millions of households, with our latest YouGov polling revealing that more than a third (36%) of mortgage holders have seen their mortgage increase by 10% or more.”

“The pain of a sustained period of high interest rates is starting to be felt by mortgage holders. StepChange’s latest client data reveals a slight increase in the proportion of clients with mortgage arrears, while figures from the Bank of England last week revealed that UK mortgages in arrears jumped to a seven year high. However, it’s not just those with mortgage who are feeling the effect, as private renters continue to face staggeringly high rents as many of their landlords pass on higher borrowing costs.”

Emma Steeley, Chief Executive Offficer at Aro said “Is it a surprise? For the first time in umpteenth quarters the BoE has recognised the needs of households across the country. What’s more of a surprise is that, while this will likely be a breath of fresh air for many, there are tens of thousands of consumers up and down the UK that have been perennially underserved by a financial system that just sees them as a number. These are individuals that for a variety of reason do not fit into the one-size-fits all lending criteria that the lending markets expect them to be, leading them into a spiralling pattern of debt.”

“While many may pause for breath at not having to reorganise their finances, we should use this time to look at how we can support those that are financially underserved and ensure we are meeting the needs of every household in 2023.”

David Cheadle, acting Chief Executive at the Money Advice Trust said “Today’s interest rate decision may come as a small relief, but it will do little to quell the anxiety for people who are already behind with their mortgage – and the many more worried about higher repayments in the future.”

“As mortgage payers roll off fixed-rate deals over the coming months, we can sadly expect many more shocks to household budgets. And renters are far from immune from the effects of higher rates, as many landlords pass these higher costs onto their tenants.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “Today’s decision to maintain the current base rate is a vote of confidence in the economy from the Bank of England; a sign that its work over the last 18 months has begun to bear fruit. This shift in approach from the Bank should begin to give lenders the confidence to lend to more people, more often.”

“However, many consumers will find themselves continuing to weather a mix of high mortgage rates and cost of living crisis impacts. For this reason, Equifax, and our lending partners, are well prepared to ensure that consumers are effectively supported throughout their borrowing journey and can access the credit they need to live their financial best.”

John Phillips, CEO of Spicerhaart and Just Mortgages said  “Like many, my expectation was that the Bank of England would follow the European Central Bank and go for one more increase. However, I’m delighted to be proven wrong and see the MPC hold rates instead. This will certainly be a positive for mortgage holders, borrowers and the general public who have been demoralised by fourteen straight interest rate rises.”

“While yesterday’s good news on inflation certainly made the pause more palatable for the MPC, there’s no question high household costs – particularly fuel, food and energy, still present a challenge. As a result, affordability will remain a clear obstacle for both borrowers and brokers.”

“Brokers will continue to play a critical role by using all the tools available to help clients make the numbers work, whether that’s the many households still set to remortgage or those that need to move. Lenders have played their part in recent weeks to reduce rates considerably and news of stability in interest rates may allow lenders to loosen the purse strings a little further.”

Alastair Douglas, CEO of TotallyMoney said “While we may have reached peak rate hike, their impact, and inflation, will continue to be felt for some time. The cost of living is still rising, and the current rate is likely to be locked in for the foreseeable future. What won’t change is the advice that if you’re struggling to keep up with your mortgage repayments, contact your lender and ask for support. It won’t impact your credit rating, and it’s free to do.”

“We’ve just seen the increase in mortgage defaults since 2009, and these can stay on your credit file for up to six years. If they persist, you might end up in mortgage arrears, leading to court action and even repossession.”

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said “Yesterday’s fall in inflation defied expectation and has released pressure on the Bank of England, allowing for its decision to hold interest rates. However, for savers, the same issue remains: there is a stark difference between the base rate and the interest rates on offer through high street banks. We are seeing too many people being penalised for their loyalty to big banks as they achieve worse returns on their savings.”

“Searching the market for alternative products remains vitally important, and branching out from established high-street names remains one of the best ways for people to lock in a better deal. For those in a position to put away a lump sum, there are a number of fixed-rate products currently topping the base rate that savers can make the most of to grow their money. Crucially, these are covered by the same Financial Services Compensation Scheme (FSCS) protection in the same way as traditional banks, which will offer consumers security and peace of mind.”

Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “The Bank of England has finally put the brakes on the relentless rate hiking cycle. A rise had been heavily pencilled in, but was wiped off the board by the surprise fall in inflation. Even before the announcement, the markets reacted, with implications for savers, mortgage borrowers and anyone considering an annuity.”

“As the market digested the news that inflation had come down, it decided a rate rise wasn’t so likely after all. As a result, bonds started to look comparatively attractive, so money flowed into them, bond prices rose, and yields fell. Yields are important here, because fixed rates tend to rise and fall with them. So this could be good news for borrowers, but less positive for savers. However, this isn’t the full story, because the Bank of England made it clear that it’s still locked in a fight against inflation. Rates could go up again in future, and at the very least are expected to hold at this level for a significant period until inflation is under control. It means we’re not expecting seismic shifts, so there are opportunities for those who act fast, and some comfort for those who can’t.”

“The pause in rate hikes is immediately better news for anyone with a variable rate mortgage, who can finally see their monthly mortgage payment hold steady for a month. Of course, there are no guarantees that this is the end of it, but they can at least take a breath.There are also positive signs for fixed rate mortgages. If lenders are going to the market for new fixed rates right now, the fact that the market’s rate expectations have fallen could mean lower mortgage rates. It means that anyone expecting to remortgage in the coming months may want to check the market, to see what’s available. If they can lock in a lower rate now, they will have secured a better deal if mortgage rates rise in future. If, however, mortgage rates continue to fall, they can shop around when it’s time to remortgage and find a cheaper deal.”

Simon Webb, Managing Director of capital markets and finance at LiveMore, said “At last, lenders, borrowers, tenants and brokers can breathe a sigh of relief that base rate has been paused at 5.25% rather than yet another rise. It was a close call though as the MPC members voted 5 to 4 in favour, and the hawks are still vying for further rate rises to bring inflation down.”

“It will be interesting to see how the money markets react as swap rates have been coming down a little lately, as have mortgage rates. Putting the brakes on base rate will be cautiously welcomed by borrowers on variable rates, those due to remortgage and people looking to buy new homes or move. But there is now a nervous wait until the next MPC meeting where the hawks may once again takeover.”