Inflation, which had lingered in double digits last year, has now dropped to the lowest level in almost three years. Disappointment has been expressed at the fact that the inflation rate failed to reach the forecast of 2.1%, which would have put it only slightly above the target rate of 2.0% set by the Bank of England. However, progress has been made as the rate is now 2.3% down from the last report of 3.2%. This brings hope to consumers the economy is moving in the right direction and their budgets will soon find relief as the inflation drop trickles down to the consumer level. The decline in the inflation rate also brings hope of lower interest rates for borrowers.

Mortgage rates have remained elevated, but the cuts to lender rates in the first quarter due to a competitive market brought about by declining inflation optimism helped fuel buyer demand. The lower rates, some below the Bank of England’s standard base interest rate of 5.25%, motivated hopeful home buyers to return to the housing market. Even as optimism dimmed for a springtime cut to the base rate and lender rates began to rise, buyers were not deterred. The surprise result in the second quarter of this year is the average house price hit a new record high of £375,131.

In the first quarter of the year, lenders became competitive and began to lower their rate offers as optimism grew for a spring cut by the Bank of England’s Monetary Policy Committee (MPC). There were many mortgage and remortgage products that were cut to below the standard base interest rate of 5.25%. As inflation failed to hit the low levels expected, it became less likely the MPC would be cutting the rate in spring, and forecasts were postponed till summer and possibly August. The lowest rates began to be pulled and replaced with higher offers. 

If you are a home seller, it is going to be easier to find a buyer if you put a starter home on the market. First time home buyers are choosing from smaller properties, even ones in need of care or upgrades and improvements. Higher priced and larger homes are going to stay on the market longer because homeowners are not moving home as they had before, preferring instead to stay put rather than upgrade to a more expensive property while interest rates are more costly. According to recent data from Halifax, first time buyers are in search of smaller properties than they were when the pandemic lifestyle was the main driver of home buying.

Last week, the Bank of England’s Monetary Policy Committee (MPC) voted to keep the standard base interest rate at 5.25% for the sixth consecutive meeting. The sixteen-year high interest rate has made borrowing more expensive and becoming a homeowner more difficult. It has also made it more difficult for homeowners to afford their homes. Despite a possible rate cut or two this year, rates are still far from what could have been imagined only two years ago.

As expected, today the Bank of England’s Monetary Policy Committee (MPC) met and voted to keep the standard base interest rate at the 16-year high of 5.25%. Their decision is based on the fact the current report on inflation reveals it at 3.2%. The expectation is for inflation to decline in the next report much closer to the target rate of 2.0%. Had the MPC meeting come after the May update on inflation, perhaps a cut might have occurred if indeed it does drop nearer to target. The MPC had to vote according to the information at hand versus the expected inflation data that will be available on 22 May.