Bank of England cautioned against rate hike amid fragile housing market recovery

The National Association of Property Buyers (NAPB) has urged the Bank of England to refrain from a 15th consecutive interest rate hike this week, warning that such a move could be a “tipping point” for many mortgage holders, given the fragility of the housing market recovery. The association’s spokesperson, Jonathan Rolande, stated that the market is showing “very, very fragile signs of recovery,” with a slight but significant uptick in September due to more competitive mortgage pricing.

Rolande noted that a year after rates began to rise, there is growing acceptance from buyers that this is ‘the new normal’, leading them to purchase homes now rather than wait. However, he warned that the situation remains precarious and any further rate increase could push many homeowners into arrears.

The previous 14 rate hikes since January 2022 have been aimed at easing inflation, which currently stands at 6.8%, far from the Bank of England’s two per cent target. These increases have had the desired effect of cooling the economy but have also put significant financial strain on families and landlords without fixed-rate mortgages.

Rolande suggested that instead of raising rates again, the Bank of England should wait and evaluate the long-term effects of the previous hikes. He expressed hope that the Bank would take time to pause following 14 months of continuous activity. “Millions of hardworking homeowners will be hoping for the same,” he added.

Laith Khalaf, head of investment analysis at AJ Bell, echoed these sentiments. He stressed that considering the burden higher interest rates place on consumers and businesses, it would be more sensible to keep rates on hold rather than add pressure to an already fragile economy.

The Bank of England’s base rate currently stands at 5.25% following 14 consecutive hikes since January 2022. The Consumer Price Index (CPI) inflation hit a 41-year high of 11.1% in October 2022.

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