Homeowners’ pain to continue as mortgage market struggles

Mortgage Group

While many analysts still expect the cut next month, others warned June’s announcement could merely be a “dress rehearsal” for a cut in August

Homeowners’ pain is set to continue as the mortgage market struggles in the wake of the Bank of England’s decision to hold interest rates at a 16-year high, experts have warned.

Threadneedle Street opted to hold off from its first base rate cut since 2020 to keep rates at 5.25% on Thurday, as the central bank’s governor Andrew Bailey vowed he would not bow to political pressure to lower the interest rates currently hammering mortgage-holders.

Despite the Bank sounding more optimistic in its forecasts on inflation and UK growth than earlier this year and a second member of its MPC voting on Thursday to reduce rates, experts remained divided on how soon the cut would eventually come.

While many analysts still expect the cut next month, others warned June’s announcement could merely be a “dress rehearsal” for a cut in August. But experts were encouraged by Bailey’s signals that Threadneedle Street could be prepared to pre-empt the US Fed.

Lewis Shaw of Shaw Financial Services told The Independent that Thursday’s announcement was likely to feel like bad news for anyone about to take out or renew a mortgage. We are unlikely to see any meaningful change with fixed-rate pricing, so the mortgage pain for many continues.

However, the minutes contained some interesting points that should give us hope of a cut in the coming months. Most importantly the reference to a divergence in monetary policy between the US and other major economies. This could well be the signal that the Bank of England will move before the Fed, he said.

If I were a betting man, I think there are good odds the ECB will cut in June, and the BoE will follow suit in August as long as they feel inflation is still going in the right direction. So, even though we are not yet out of the tunnel, perhaps we are starting to see the light at the end of it, he added.

Riz Malik of R3 Mortgages agreed that, given Thursday’s voting split, “June’s decision may be a dress rehearsal for a cut in August”.

The first base rate will significantly boost confidence in the UK property market, no matter the scale of the reduction, he said, adding: In the meantime, the UK mortgage market will continue to limp on until we see that initial reduction or further economic data comes to light which indicates it is on its way.

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