Bank of England Holds Interest Rates at 3.75%
Colleen Babcock, property expert at Rightmove says:
“There’s stability for now as the Bank of England holds its Base Rate as widely expected. We’ve seen average mortgage rates increase over the last few weeks as geopolitical tensions have escalated, and the average two-year fixed rate is currently coming it at 5.11%. For broader context, this is up from 4.25% before the war in Iran started, but down from around 5.43% at the peak of tensions in April. For home-movers, rates remain elevated which continues to stretch affordability. However, while rates are high, they’re also relatively steady, which helps movers to plan and make decisions. Even relatively small changes in mortgage rates can have a noticeable impact on monthly repayments, particularly for first-time buyers, so any downwards movement in rates during the second half of this year would be very welcome.”
Nathan Emerson, CEO at Propertymark, comments:
“By holding interest rates, the Bank of England has opted for a measured approach as inflation remains above its 2 per cent target. While price pressures have eased in recent months, today’s decision reflects the need to ensure inflation continues moving in the right direction before further policy changes are considered.
“A stable base rate provides greater certainty for the housing market. It gives lenders more confidence to continue offering competitive mortgage products while allowing buyers to make informed financial decisions. Savers also continue to benefit from relatively attractive returns on savings, helping some prospective homeowners build towards a deposit.
“However, inflationary pressures have not disappeared. Higher household costs, including July’s increase in the energy price cap, alongside ongoing uncertainty in global energy markets, mean the Bank of England is likely to continue taking a cautious, data-led approach over the coming months.”
Sarah Thompson, Group Financial Services Director, Mortgage Scout, part of LRG
Today’s decision to hold the base rate at 3.75% reflects the fact that inflation has come in lower than the Bank of England expected. The latest figure of 2.6% is below the 2.7% many economists had forecast, driven largely by softer food and petrol prices. While that is still above the Bank’s 2% target, it has given the Monetary Policy Committee room to keep rates on hold this time round.
However, this is not a signal that rate cuts are back on the table. The current inflation figure does not yet reflect the increase in the energy price cap due later this year, and the Bank has been clear that it expects inflation to tick back up as a result. At the same time, swap rates have risen in recent days amid ongoing political uncertainty, and several major lenders have already started to nudge their mortgage rates upwards in response – even ahead of today’s announcement.
That combination of rising swap rates and a less certain inflation picture in the second half of the year means we would not rule out a base rate rise before the end of 2026. For borrowers, the message is clear: the window to secure today’s rates will not stay open indefinitely.
This matters most for the large number of homeowners whose fixed-rate deals are due to end over the coming months and into next year. We are speaking to many customers who took out five-year fixes at rates as low as 1.24%, only to find themselves facing rates of around 4% when they come to remortgage. That is a significant jump in monthly outgoings, and the earlier people prepare for it, the better.
Our advice to anyone refinancing before the end of the year is simple: act now. Reserving a rate today costs nothing and commits you to nothing – if rates improve before your deal completes, you can still move to a better option. But if rates rise, as we think they may, you cannot go back and secure the rate that has already gone. Preparation, not delay, is what puts borrowers in control.
Kevin Shaw, National Sales Managing Director at LRG
Today’s decision to hold Bank Rate gives the housing market another period of welcome stability. Buyers and sellers may still wish mortgage rates were lower, but the Bank Rate remains below the 4.25% recorded a year ago and the 5.25% seen two years ago. The direction since July 2024 has been down or sideways and a more settled interest rate environment allows people to plan with greater confidence.
A hold was always the most likely outcome. Inflation remains above the Bank of England’s 2% target, but softer employment conditions and easing wage growth suggest that underlying domestic inflationary pressure is continuing to recede.
That resilience is reflected in LRG’s sales performance. July has remained active despite school holidays, exceptionally hot weather and the considerable distraction of the World Cup. Buyers and sellers are still moving for work, schools, relationships and lifestyle changes and the housing market rarely waits for every economic light to turn green at once.
The Bank Rate is only part of the picture. Swap rates have risen as financial markets reassess inflation and the likelihood of future increases, which has pushed up some fixed mortgage rates. Buyers considering a purchase should therefore speak to a broker early and consider securing a mortgage offer while reviewing their options as the transaction progresses.
This remains a good market for buyers. There is more choice than we have seen for some time and greater scope to negotiate. For sellers, the opportunity lies in pricing accurately from the outset. A property receives its greatest exposure during its first three weeks on the market, so the early response provides valuable evidence. Testing a slightly ambitious price is understandable, but sellers should be prepared to adjust quickly if buyers vote with their feet.
Greater certainty over property taxation will also help the market, so it’s encouraging that Andy Burnham has ruled out replacing Stamp Duty immediately. Property taxes do need reform, but any suggestion that Stamp Duty could soon disappear would encourage buyers to delay transactions and create chaos in the market. Reforms of this magnitude should be researched and consulted upon extensively.
By the next interest rate decision in September, the outlook for energy prices, government spending and inflation should be clearer. For now, the market has a stable base, willing buyers and a good level of choice. Well-presented homes at credible prices will continue to sell.
Ben Nichols, CEO of RAW Capital Partners:
“This decision will come as a relief to borrowers. Such has the turn around in economic conditions been in the past six months that while previously the property market was expecting steady base rate cuts, today a hold feels like a victory.
“While strikes in the Strait of Hormuz have added upwards inflationary pressure and oil prices remain volatile, the annual inflation rate has been slowing more than expected in recent months. This has allowed the MPC to provide some continuity for brokers and borrowers by holding interest rates for the fifth consecutive time. Such stability is to be welcomed during a period of political and economic volatility.
“But there remain doubts as to how long we can stay in this holding pattern. Many economists expect interest rates to rise later in the year. The extent of that rise will be determined by several key factors, most notably: how the conflict in the Middle East unfolds and what this means for oil prices, and how the market responds to the policies of the new Andy Burnham government, including the Autumn Budget. Lenders and brokers must be agile in responding as these events unfold throughout the second half of the year, ensuring borrowers have both the support and products they need to act with confidence.”
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