Credit, Collections & Insolvency News
The Bank of England has announced that it has held interest rates at 5% for a second month. The committee voted 8:1 to keep rates on hold, with one vote for a cut.
Commenting on the announcecment, Grace Brownfield, Senior Influencing Manager at the Money Advice Trust said “Millions of homeowners are already under pressure from steeper mortgage repayments and – with interest rates held – many more will face the challenge of significantly higher costs as their fixed rate deals end.
“For people with budgets at breaking point, meeting housing costs is becoming more difficult. With energy costs set to rise next month, the pressure is mounting for people who are already struggling to pay for their essential”s.
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Society Association said “Following the cut in the Bank Rate last month, almost half of UK adults (44%) thought that based on the current economic conditions the Monetary Policy Committee should have reduced the Rate again today.
“The cut in the Bank Rate last month marked a significant turning point in what had been a difficult two and a half years. However, in reality shaving just 0.25 percentage points of the Bank Rate has not made a significant impact on mortgage affordability or confidence in the housing market, despite markets pricing it in to mortgage rates.
“First-time buyers, who are critical for a properly functioning housing market, are still indicating that they are unable to afford homeownership. The Building Societies Association’s latest Property Tracker Reportissued today shows that the affordability of monthly mortgage payments continues to be the biggest barrier to buying a home, with almost two-thirds (61%) citing this. Over half (55%) said raising a deposit is an obstacle to them being able to take a step on the property ladder
“We still expect the Bank Rate will reduce this year, however this is happening much later and slower than we had anticipated earlier in the year.”
Melanie Spencer, Sales and Growth Lead at Target Group, said “Even with the Fed’s sizeable cut last night, today’s decision to hold was still the most likely outcome, and expected by the markets, economists and by businesses across the sector. That little bit of stability has already allowed a number of lenders to tweak rates and engage in increasing competition for new business. The good news for potential borrowers is that this is likely to continue as we head towards the next potential cut, widely expected in November.
“Of course, the Bank of England will keep a close eye on inflation before making any further decision, along with a number of other key metrics and global markets that could throw a spanner into the UK economy.
“However, with expectations that rates and market conditions will continue to improve, it’s important lenders, banks and building societies are in the best possible position to meet rising consumer demand. Investing in the latest technology to drive efficiencies in application, decision-making and throughout the entire mortgage process has to be a priority as consumers continue to get their moving plans back on track. It’s also hugely important for brokers too, ensuring they are in a position to best support their clients.”
Peter Stimson, Head of Product at Mpowered Mortgages, said “The Bank has resisted the temptation to cut interest rates, despite the UK economy flatlining in recent months. Sluggish GDP growth increased the likelihood of successive rate cuts, but with core inflation rising again in August the Monetary Policy Committee remains cautious.
“However, as long as there are no major financial shocks before the end of the year, further rate cuts are likely which will bring down the cost of borrowing. So while borrowers may have been hoping for better news today, it shouldn’t change the gradual downward trend we are seeing in mortgage rates.
“Fierce competition among lenders is also a major contributing factor, as providers are continually repricing deals to keep up with their rivals. A return to the days of ultra-low mortgages may be behind us, but the good news for homeowners is that we have passed the peak and deals should continue to get cheaper.”
John Phillips, CEO of Just Mortgages and Spicerhaart, said “Today’s decision was widely expected given the cautious approach the Bank of England continues to adopt. News of inflation remaining unchanged would have certainly been a relief for the central bank, but not enough for it change course and move to sequential cut. The Fed’s large cut last night wasn’t a big enough driver either, even with the central bank’s tendency to follow their lead. Nonetheless, sentiment continues to point towards the next cut coming in November, barring any surprises or potential shocks to the economy – either at home or from abroad.
“Even without another rate cut though, we are continuing to see activity across the market, with lenders in all sectors making reductions and criteria changes to encourage new business and increase market share. From our perspective, clients have responded well to the changes in the market and returned from the summer break with house moves back on the agenda. The best brokers are already responding to this and are proactively positioning themselves to help clients navigate the market and seize opportunities.”
Richard Carter, CEO of Lenvi “Lenders may not be too surprised by the BoE’s decision today to hold rates at 5%, after August’s cut marked the first drop in 16 years. Borrowers, however, may have hoped for more action, as our latest research on consumer habits found that four in ten (39%) borrowers listed low interest rates as their biggest priority when choosing a lender.
“Although we haven’t seen a change this month, homeowners and first time buyers should still be reassured by August’s rate cut. The good news is that major lenders such as Santander and Natwest have already begun reducing rates in anticipation of this month’s announcement.
“Although it was previously suggested that we’d see three interest rate cuts this year, the consensus now is for just one further cut. For worried first time buyers, the potential of another rate cut in 2024 should make their path to home ownership feel a little bit more achievable.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “The Bank of England is following a well-trodden path – pausing rates while it waits for more clear-cut signs that inflation is under control. The mortgage market has the same map, so was expecting it to take this particular direction. It means we’re unlikely to see any major repricing from the banks.
“Those on tracker rates and standard variable rates will be disappointed. When they opted for these deals, they’ll have hoped rate cuts would come thick and fast, but cuts have been decidedly skinny and sluggish. Fortunately, there’s some hope ahead, with the market expecting more cuts this side of Christmas, and the prospect of their finances finally easing a little.
“The vast majority of the mortgage market is still fixed, and there’s better news for those looking for a new deal or facing a remortgage, because the market has already priced in the cuts it’s expecting over the next couple of years. The average 2-year fixed rate mortgage is currently 5.37% – a far cry from just three months ago when it was knocking on the door of 6% (5.97%). Competition is hotting up, and we’ve seen rates launched at less than 4%, which bodes well for buyers.
“This is particularly good news for higher earners, who are carrying bigger mortgage, for whom the prospect of remortgaging onto a higher rate was particularly alarming. Figures from the HL Savings & Resilience Barometer show that the average middle earner has a monthly mortgage payment of £567 – around half that of those on the fifth highest incomes, who pay £1,053. It’s also good news for younger buyers, who face the double whammy of having less equity and being on a lower income. Millennial and Gen Z owners pay an average of £742 a month, so will have been particularly worried that a remortgage could make an even bigger dent in their monthly budget.
“The hold on rates isn’t the most significant thing driving sentiment right now, so is unlikely to move the market. Buyers are benefiting from wages outstripping inflation – making them feel wealthier. Meanwhile, mortgage rates have been falling, making properties feel more affordable. The longer this continues, the more positive sentiment is likely to be, and the better the chances of a lively property market as we go through the rest of the year.”