England seems to be changing radically by the hour, but the one thing everyone expected to change was interest rates, which stayed the same.
Lower interest rates are typically a boon to the housing market, as cheaper borrowing costs fuel demand, which in turn is good for the housebuilding industry. “Lower interest rates are good news for the UK’s construction industry, particularly when it comes to off plan property,” said Ray Withers, CEO of Property Frontiers. “Lower borrowing costs benefit both developers and individual homeowners, spurring the former on to build and the latter on to buy.”
It was widely anticipated that the Bank of England would slash its interest rates on Thursday (14 July), sparking a scrabble for cheap mortgages. It was, however, not meant to be. The Bank of England announced it would keep rates at 0.5 per cent, reassuring the world that the UK’s Central Bank does not think this is the time to panic.
“QE aside, interest rates are the Bank of England’s biggest monetary policy weapon. But with rates already so low, the Bank only has one bullet in the chamber – and today it opted to delay pulling the trigger,” said David Lamb, head of dealing at FEXCO Corporate Payments. “While the Monetary Policy Committee’s minutes predict many storm clouds on the horizon, it clearly fears playing its rate cut trump card too early.”
The Bank of England’s decision to hold fire also bodes well for the property sector. “The news that the Bank of England held interest rates at 0.5% today is also good for the property sector as it signals confidence in the UK’s economy,” said Withers. “Rather than a knee-jerk reaction to the recent political decisions and changes, the Bank of England seems content that the economy is on the right track and that no changes to interest rates are therefore needed at this time.”
According to eMoov.co.uk, the move is a welcome reminder that interest rates are already at historic lows and are likely to remain so. “The Bank of England have today announced that interest rates will continue to remain frozen at 0.5%,” said Russell Quirk, CEO of eMoov. “This confirmation should remind us that the cost of money, especially for home buyers, is at a record low. The UK economy and the property market, in particular, are now awakening from the apparent Brexit limbo it has been stuck in over the last few weeks.
“The UK property market is still fighting fit, despite the negative sentiment it has been plastered with by Brexit doomsayers and, with mortgage rates also certain to remain low, now is the perfect environment for UK property if there ever was one.”
A cut to interest rates is, however, still on the cards – it’s just a question of when the Bank of England chose to play it. “We believe August is the most likely time for a decrease in the bank rate,” Azad Zangana, Senior European Economist and Strategist at Schroders, said. “It gives the Bank of England more time to gauge the impact of the EU referendum. As we said earlier this week, the July meeting was too early to fully understand what the economic data is telling them.”