Hope for mortgage pain relief as interest rate hikes paused — but experts warn we’re not out of the woods

Breathe a sigh of relief, but don’t hold your breath, suggest experts  (Daniel Hambury/Stella Pictures Ltd)
Breathe a sigh of relief, but don’t hold your breath, suggest experts (Daniel Hambury/Stella Pictures Ltd)

With the Bank of England voting to hold interest rates at 5.25 per cent at midday today, the mortgage market has already responded.

Just hours after the news Nationwide, the UK’s biggest building society, announced it would be cutting many of its mortgage rates by 0.31 per cent.

The news will be welcome to the thousands of Londoners who have seen their mortgage costs skyrocket.

“This might be the dawn of a new era, ushering a hopeful period of stability for mortgage holders,” said Nick Leeming, chairman of estate agents Jackson-Stops.

“A momentous sigh of relief can be heard up and down the UK, especially those half a million mortgage borrowers whose fixed-rate deals are coming to an end,” Leeming added.

“The pause in rate hikes is an unquestionable win for homeowners.”

We are not yet ‘out of the woods’

But homeowners and potential buyers should remain cautious, as future interest rates rises from the Bank of England are not off the table yet.

“We are not yet ‘out of the woods’,” warned Anna Clare Harper, CEO of sustainable investment adviser GreenResi.

“Inflation remains high, meaning that base rates are likely to rise again. Despite this month’s ‘pause’, we can expect to see many more property owners with higher monthly interest payments selling this year and next,” she said.

With interest rates on hold, mortgage offerings could become more palatable.

“The Bank of England’s decision to maintain the current base rate is an important signal to the mortgage markets and should take some of the edge off the affordability pressures buyers are currently facing,” said Lucien Cook, head of residential research at Savills.

With inflation still high at 6.7 per cent in August, interest rates are unlikely to be reduced any time soon.

Buyers’ budgets are going to remain constrained

Meanwhile the London property market remains sluggish, with homes taking an average of 63 days to sell according to the latest Rightmove data. The latest figures from the Office for National Statistics released this week show house prices in London have fallen by 0.8 per cent annually.

“Buyers’ budgets are going to remain constrained,” added Cook. “There is a little way to go before house prices bottom out.”

But homeowners looking for a better mortgage rate could be in luck as a more competitive edge returns to the market.

"Even before the base rate announcement, we’ve seen lenders slash their (mainly fixed) rates over the past few weeks, in what looks to be becoming a much more competitive market than we’ve seen in recent months,” said Kellie Steed, Uswitch.com mortgage expert.

“This is mainly due to swap rates, which are used to price fixed-rate deals, recently falling,” she explained.

A good time to lock in a new rate

NatWest has already announced further cuts of up to 0.2 per cent on selected residential fixed and tracker deals, while Virgin Money launched broker-only residential and buy-to-let fixes with interest rates below 5 per cent.

“It could therefore very well be a good time to lock in a new rate,” Steed advised homeowners.

After almost two years of 14 successive interest rate rises compounding the housing crisis, today’s pause will provide a measure of breathing room after the financial shocks.

“Consecutive rate rises have exacerbated increasingly stretched affordability and done nothing for the confidence of buyers relying on mortgages,” said Jason Tebb, chief executive officer of property search website OnTheMarket.com.

“It is hoped that this pause will give buyers and sellers who had put plans on hold more confidence to transact.”

Despite the reprieve, inflation remains at the highest levels seen in the UK since the 2008 financial crisis.

It is dangerous to make a snap decision

A year on from the economic turmoil set off by the September 2022 mini-Budget policies, mortgage rates and house prices remain both high and out of step with most people’ wages.

“Stability is so important to the property market and brings confidence to buyers and sellers sitting on the fence finding it difficult to budget before deciding to make their moves,” said Jeremy Leaf, north London estate agent and a former RICS residential chairman.

“This hold, after many months of rises, will bring some welcome reassurance,” he added.

But with the 5-4 vote a close-run thing, homeowners and buyers can’t relax into that reassurance yet.

“It does show is that it is dangerous to make a snap decision based on one month’s figures and then regret it later,” said Leaf.