Bank of England Interest Rate Announcement | 21st September 2023

Todays decision by the bank of England to hold the base rate at 5.25% has delivered an unexpected and pleasant surprise for Britain’s homeowners.

Yesterdays slight drop in the rate of inflation will certainly have had an impact on the decision and over the last 2-3 weeks many lenders were already offering much better than expected mortgage rates. It could be argued that Mortgage lenders are very much like bookies, you don’t see a poor one and they are very rarely wrong with their figures. So the predicted figures of 6% plus may well have been an over estimation.

If mortgage rates are finally looking like they could be stabilizing then we could be seeing the start of a new era of lending where rates are more in line with what has prevailed historically rather than what we have seen since the financial crash of 2007. This link to the Bank of England’s own records of historic data is an interesting review look at where rates have previously been:

As can be seen, rates during the period 2000 to 2007 ranged from 3-6% and it is highly likely that this is where we are going to be for a good few years to come.

Where this leaves the housing market is unclear. Prices have certainly been falling, probably much more than has been reported because official data is generally 6-8 months behind reality. However, this unexpected news may well mean that many vendors will be encouraged to maintain asking prices that are too high which will not give the housing market the true stimulus and correction it really needs.

Hopefully we will see a more traditional housing market appear as we progress into 2024 but at the time of writing this is far from certain. Whether the BoE have gone for stability too soon by holding rates remains to be seen but what must be avoided is further increases in inflation and further instability caused by future rises in the base rate to curb it.

Time will tell but hopefully this welcome short term gain does not prolong mid to long term pain.

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