Interest rates hold at 5.25% – consumer credit industry reaction

The Bank of England has announced that interest rates will be held flat at 5.25%. The MPC voted 6-3 to hold rates steady, with dissenters preferring to raise rates by 0.25% to 5.5%

Responding to the news Change Debt Charity that the hold will be worrying for households yet to secure a new fixed-rate mortgage deal, as well as private renters who have faced the knock-on impact of high rates through unprecedented rent rises this year.

Richard Lane, Director of External Affairs at StepChange Debt Charity, said “With the base rate holding at 5.25% today, households are facing little respite from financial woes as we approach the new year. As the Bank of England pointed out last week, there are still many mortgaged households yet to secure a new fixed-rate deal since we first saw rates increase last year. Our latest polling has shown just how difficult the last two years has been on people’s finances, with one in four people now saying they will struggle to afford Christmas this year. Combined with the increase in energy bills from January, stubbornly high interest rates could spell further financial difficulties for both mortgage holders and renters well into 2024 and beyond.”

Paul Heywood, Chief Data & Analytics Officer at Equifax UK said “After almost two years of change, we now find ourselves in the base rate change doldrums. While many consumers will be pleased to see the pause continue, the Bank of England will be closely monitoring for signs that the base rate changes earlier in the year are taking effect.”

“Mortgage rates appear to have peaked, and there is some movement in the right direction as providers vie for consumers’ attention. However, rates remain historically high and the impact of previous rate hikes is still being felt by many households, with overall mortgage arrears now having increased for 11 consecutive months to November.”

“While the news is mixed for mortgages, the introduction of the Mortgage Charter offers guaranteed support for anyone who has doubts about their ability to meet repayments. We recommend anyone concerned about their mortgage repayments to reach out to their provider to discuss the support available to them.”

John Phillips, CEO of Spicerhaart and Just Mortgages said:“Instead of a cut and an early Christmas present or a rise and becoming the Grinch that stole Christmas, the Bank of England went with the widely expected option of holding rates for the third time in a row. Even with a number of positive indicators, particularly cooling inflation, the bank is still maintaining its position of ‘higher for longer’ – although many are predicting a rate cut early next year.”

“Nevertheless, another hold brings continuity and stability and provides an opportunity for lenders to reassess and reprice. It will no doubt add further ammo to the ongoing rate war among lenders – which is great news for borrowers and prospective buyers. We mustn’t forget though that this will still be higher that what many clients perceive as ‘normal’, highlighting the real need for brokers to be proactive in educating clients on the realities of today’s market and what it means for them and individual situation.”

“This will continue to be a big focus for the year ahead, as affordability will likely remain a key challenge for many borrowers. There’s no question the successful brokers next year will be those that are getting the fundamentals right, having those deeper conversations and delivering a five-star service and experience – generating referrals and new business in the process. This is particularly pertinent with recent reports suggesting gross mortgage lending could drop in 2024.”

David Cheadle, acting Chief Executive at the Money Advice Trust, the charity that runs National Debtline said: “The impact of high interest rates has already taken hold for millions of mortgage holders struggling with higher payments. And for people on fixed term deals, the shock of a steep increase in mortgage repayments is still to come.”

“People who rent are not immune from the impact, and many have seen their rents jump as rate rises are passed on by landlords. As the cost of essentials seems set to remain high across the board, as we see at National Debtline, for people on the lowest incomes, budgets are no longer able to stretch.”

Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown said “The Bank of England isn’t budging from the summit, and as expected, policymakers are keeping rates on hold. Stubborn inflation is still a worry and it looks like we are set to be stuck on this cold high plateau for some time. The descent, when it comes, is likely to be gradual rather than a vertiginous drop.”

“The timing of any cut will depend on treading the delicate balance between cooling inflation and supporting the economy, given that stagnation conditions have bedded in. Inflation is set to fall in next week’s figures – although not as dramatically as a month earlier. In fact, over the course of 2024, inflation may not fall as far, or as fast, as you may suspect – because the Bank of England will need to contend with domestically-fuelled inflation, which is a tough nut to crack. As a result, the Office for Budget Responsibility thinks inflation will average 3.6% in 2024. To keep this under control, the Bank of England is going to need to keep an iron grip on interest rates.”

“On the other side of the coin is the state of the economy, which has just delivered particularly uninspiring GDP figures. All eyes will be trained on jobs and wage growth, and weakness in either could be the canary in the coalmine for the economy, which has been sustained by robust spending. If we get more weakness than is currently expected, that might encourage the Bank of England to cut rates sooner.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “This interest rate pause was signposted more impressively than the entrance to a signpost symposium. Unless something wildly unexpected happens, we’ve hit the top of the rate rise cycle, and the question is no longer what will happen next to rates, it’s how long we’re going to wait until we see cuts, and what this means for mortgages.”

“Tracker mortgages will hold steady when rates are on hold, because they move with the base rate. Fixed rate mortgages, meanwhile, are on their way down – and the average two-year rate has dropped below 6%. Fixed rates are mainly driven by expectations, and right now the market is expecting Bank of England rate cuts sooner rather than later, which is feeding into cheaper deals. We can expect more of the same in the coming months.”

“If your fixed rate deal is coming to an end, you might opt for a variable rate deal, in the expectation that monthly payments will hold steady for a significant period and then drop. However, there are no guarantees. If you’re worried about uncertainty, you might opt for a fixed rate deal. Of course, for anyone who fixed two years ago or more, even after the falls of recent weeks, a remortgage is going to be incredibly painful, because they’re likely to have fixed for less than 2%. We’ve seen nosebleed-inducing ups and downs in the mortgage market over the past two years – with two-year fixed rate deals hitting a recent peak of 6.85% at the start of August, before dropping back below 6%. However, this is a completely different mortgage landscape to two years ago, and there’s no expectation that we’ll return to the good old days in a particular hurry.”