The Bank of England has kept interest rates on hold at 3.75%, but the prospect of renewed rate rises is casting fresh uncertainty over the housing and mortgage markets.

The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep interest rates unchanged at 3.75%.

Three of the nine committee members voted to raise Bank Rate by 0.25 percentage points to 4%, while six backed keeping rates on hold.

The decision marks a sixth consecutive meeting without a change in Bank Rate, as policymakers grapple with renewed inflationary pressures and the threat of another energy price shock.

UK inflation rose to 3.1% in August, remaining well above the Bank’s 2% target, while financial markets have increasingly shifted their expectations towards higher borrowing costs.

The changing outlook could have significant implications for mortgage affordability and housing market confidence, particularly for borrowers approaching the end of fixed-rate deals and buyers assessing how much they can afford.

Pressure on global interest rates has also intensified after the US Federal Reserve raised rates by 0.25 percentage points yesterday – its first increase in more than three years. The decision, which took the federal funds target range to 3.75%–4%, was unanimous.

Meanwhile, UK government borrowing costs have climbed sharply, with the 30-year gilt yield recently reaching its highest level since 1998.

Industry reaction: 

Jeremy Leaf, north London estate agent: “The decision to leave rates unchanged, which seemed fairly straightforward a few weeks ago, is now a little trickier. A rise in interest rates is becoming increasingly likely and now sooner rather than later.

“The impact of an uplift on an already fragile, price-sensitive housing market, would not be helpful. Recent house price and mortgage approval figures confirm that a significant recovery is unlikely in the near future. The rising cost of living has made it increasingly difficult for prospective homebuyers to consider moving unless needing, rather than wanting, to do so.

“The Bank is grappling with inflation, now back over 3 per cent, and Swap rates, at a three-year high, which is prompting lenders to push up their mortgage pricing.”

 

Iain McKenzie, CEO of The Guild of Property Professionals: “The Bank of England’s decision to hold rates at 3.75% for a sixth consecutive meeting will come as little surprise, but the latest inflation figures underline just how difficult the path back to the 2% target remains.

“For the housing market, the key concern is that higher inflation and rising swap rates feed through into mortgage pricing, putting further pressure on purchasing power at a time when affordability is already stretched. That could make the autumn market more subdued than the seasonal pickup we would normally expect, particularly in higher-value areas where the impact of mortgage costs is magnified.

“That said, we are seeing early signs of buyers returning to the market as people get back into their normal routines after the summer. There is demand, but buyers are likely to remain highly price-conscious, taking advantage of the choice available to them.

“With transactions in July already 2% lower than the previous month, the combination of affordability constraints and elevated borrowing costs means a meaningful recovery in activity is likely to depend on greater stability in the mortgage market.”

 

Jason Tebb, president of OnTheMarket: “As expected, the Bank of England kept base rate at 3.75 per cent for another month.

“With the rate of inflation rising to 3.1 per cent in the 12 months to August, there were concerns that this would persuade the Committee to increase the base rate at this meeting. However, its ‘wait and see’ approach continues for now at least.

“Although six members of the committee voted for a hold while three favoured a quarter-point increase to 4%, this was the same spit as at the last meeting, with the majority continuing to favour the current position.

“While interest rate cuts are helpful in boosting buyer and seller confidence, this sixth consecutive base rate hold suggests a steadiness and stability which is no less welcome, particularly with the Budget approaching. Our advice to agents and homeowners is the same as always: do not sit on your hands waiting for the political dust to settle, because it never fully does, so focus on what you can actually control.”

 

Nigel Bishop of Recoco Property Search: “A rate hike would have had another crippling effect on an already stagnant property market. Whilst some buyers and homeowners whose mortgage is due for renewal may be relieved, this feeling will only be momentary as mortgage products have already gotten more expensive. A hike in interest rates later this year is still very much on the table but the Bank of England probably first wants to hear if next month’s Autumn Budget introduces any policies that tackle inflation.”

 

Richard Merrett, managing director of Alexander Hall: “The base rate remains an important factor for buyers, but it is only one element of the wider affordability picture. Over the past year, lenders’ criteria have improved considerably, with higher income multiples and a broader range of low-deposit products increasing the options available to first-time buyers, in particular.

“As a result, today’s decision is unlikely to materially alter affordability for many homebuyers. Deposit size, income, access to appropriate mortgage products and the right professional advice from a mortgage broker – who can identify the best solution for each person’s circumstances – will continue to play a far more significant role in determining what they are able to purchase.

“So the stability of a hold decision, alongside improving borrowing capacity and more affordable house prices, represents a significant buying opportunity.”

 

Amy Reynolds, head of sales at Antony Roberts: “Lenders haven’t waited for the Bank of England. Mortgage rates have been edging up this week ahead of today’s decision, which tells you the market has already stopped pricing in quick cuts, and with inflation still sitting above target, we expect rates to be held rather than fall this side of Christmas.

“That isn’t a crisis, but it does mean buyers waiting for a cheaper mortgage to rescue their budget could be waiting a long time.”

 

Nicky Stevenson, managing director of Fine & Country: “The Bank of England’s decision to hold rates at 3.75% comes at a time when inflation continues to move further away from its 2% target, adding further pressure to an already closely watched property market this autumn.

“There are early signs of renewed activity as buyers and sellers return to normal routines after the summer, but the market remains firmly price-sensitive. Mortgage costs are still weighing on affordability, while buyers have a high level of choice and can afford to be selective.

“In this market, optimism is not a pricing strategy. Getting the pricing and positioning right from day one will be critical. Homes that are priced realistically can still attract attention from motivated buyers, but properties that start too high risk sitting on the market while competing stock continues to build.

“It is about recognising where buyers are today. In a market where affordability is under pressure, realistic pricing is increasingly the difference between generating meaningful interest and becoming another property that buyers scroll past.”

 

Verona Frankish, CEO of Yopa: “Another hold may feel like more of the same, but for homebuyers, it will at least provide some predictability.

“The market has already shown it can function with rates at their current level and, for serious buyers, certainty over what they can afford is arguably more important than trying to second-guess when the next cut might come.”

 

Marc von Grundherr, director of Benham and Reeves: “Another hold keeps borrowing costs elevated, but by now today’s homebuyers have long since recalibrated to that reality. The more important issue for the housing market is whether sellers have done the same.

“Where asking prices reflect today’s affordability constraints, deals are still being done. Where they don’t, sellers will continue to see their property sit on the market with little to no interest. In that sense, the Bank’s decision changes very little – realistic pricing remains the biggest factor determining whether a property sells.”

 

This article is currently being updated.