The Bank of England held interest rates at 5.25% for a second time in a row after 14 consecutive increases this week, but warned that it was “much too early to be thinking about rate cuts”.
Following the decision by the Bank of England’s Monetary Policy Committee on Thursday (2 November), many senior industry figures warned of the negative impact on an already struggling housing market.
Dominic Grace, senior adviser at data science company Outra said: “The ‘higher for longer’ approach of the bank will scupper any notion that, for the foreseeable future, interest rates will return to the freakishly low levels enjoyed by home buyers over recent years. This is not just affecting values, but sales volumes too.”
Fred Jones, COO of instant buying firm UPSTIX, said: “Homeowners may be tempted to breathe a sigh of relief as rate hikes remain paused, but the effects of fourteen previous rises have not yet fully fed through to the housing market. Falling prices and low demand are two issues that will continue to be a thorn in sellers’ sides as the Monetary Policy Committee cements its ‘higher for longer’ policy.”
Others expressed concern about the ongoing lack of development activity. Chairman of Cornerstone Group International, David Hannah, said: “It is disappointing to see the Bank of England’s announcement that interest rates will remain at 5.25% at a time when the UK property market is at risk of freefalling into a crash. Developers aren’t building at the moment; prospective first-time buyers are holding off from entering the market and we’re seeing a mass exodus of landlords – largely caused by sky-high interest rates.”
The decision to hold the base rate would lead to further falls in house prices, added Tom Bill, head of UK residential research at Knight Frank. “The financial pain from higher mortgage rates is still filtering into the system and there is a mood of uncertainty due to next year’s general election and conflict in the Middle East,” he said.
“Demand and supply have been subdued, which means this housing market slowdown has been marked by a slump in transactions more than prices. We expect UK prices to fall by 7% this year and 4% next year as inflation comes under control and mortgage rates stabilise.”
However, some industry figtures were more upbeat. James Dickens, managing director of Birmingham-based housebuilder Wavensmere Homes, said: “The decision to continue to hold the base rate… will deliver a period of stability. Following the 14 consecutive rate rises, today’s six/three hold decision was not as narrow as when the Monetary Policy Committee last met six weeks ago. However, while the economy is showing signs of stagnating, the housing market is turning a corner.”
Bank of England governor Andrew Bailey said the Monetary Policy Committee would “be watching closely” to see if further rate increases are needed, but added that even if they are not, “it is much too early to be thinking about rate cuts”.
He added: “Let me be clear, there is absolutely no room for complacency. Inflation is still too high. We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target.”
