On Thursday, the Bank of England made the expected decision to hold interest rates at 4.75%, following a second consecutive monthly rise in inflation, which reached 2.6% in November 2024.
This move reflects the continuing challenge of addressing inflation, which remains above the Bank’s target rate of 2.0%.
Stephanie Daley, Director of Partnerships at mortgage advisory firm Alexander Hall, commented, “The Bank of England’s decision to hold interest rates at 4.75% comes as no surprise, given the current economic climate. With inflation rising to 2.6% in November and core inflation increasing to 3.5%, we are seeing clear upward pressure on prices.”
‘Forecasts still expect future base rate drops next year’
For homeowners and potential buyers, the sustained base rate of 4.75% brings with it a challenging environment for mortgage rates, which are unlikely to see significant relief in the immediate future.
Daley noted that, although a reduction in the base rate is expected in 2025, inflationary pressures will likely continue to influence pricing.
“Forecasts still expect future base rate drops next year but in the short term the sustained inflation trend will likely keep lenders vigilant and mortgage pricing reflective of longer-term uncertainties,” she said.
‘We simply haven’t seen the base rate reductions that many had hoped for’
Jonathan Samuels, CEO of specialist lender Octane Capital, acknowledged the difficult circumstances but found optimism in the broader property market.
“Whilst it’s been a largely positive year for the property market, we simply haven’t seen the base rate reductions that many had hoped for and, as a result, higher mortgage rates have remained a challenge for many borrowers,” Samuels explained.
However, he remained hopeful that the property market was in a better position than a year ago.
“The silver lining is that we remain in a far more positive place than we did even a year ago and buyers should continue to act with a greater degree of confidence when traversing the market.”
Caution in the commercial sector influences the housing market
Marc von Grundherr, Director of Benham and Reeves, offered a balanced perspective.
“Not the Christmas cracker that many homebuyers were hoping for but not quite a lump of coal either,” he remarked. Von Grundherr added that the base rate hold would have little effect on the housing market’s current trajectory, particularly with the stamp duty deadline approaching.
However, the broader implications of this rate hold were highlighted by Robert Sadler, Vice President of Real Estate at Excellion Capital.
Sadler pointed to the increased inflation and the rise in the 5-year SONIA swap rate, which had heightened investor caution.
“We’re likely to see mortgage rates increase, and on the commercial side, heightened investor caution driven by increased borrowing costs,” he noted.
Sadler also raised concerns about the impact on the government’s ambitious housebuilding targets, suggesting that the decision to hold interest rates would likely lead to higher project costs and slower progress.
“At a time when the UK needs an environment of ambition and calculated risk-taking, this base rate decision is likely to foster one of caution and constraint,” he said.