At first sight the decision by the Bank of England not to raise base rate appears good news for the industry – but the small print of the decision contains a warning.
The minutes of the BoE Monetary Policy Committee, released at the same time as the decision, carry a warning that “banks’ funding costs, an important influence on mortgage rates, had risen since May and it was possible mortgage rates would shortly begin to rise.”
In the wider context, the BoE thinks the economy’s growth over 2015 as a whole will be nearer 2.8 per cent than its earlier 2.5 per cent forecast but the Bank has revised down its employment growth estimates for this year.
One one of the nine members of the Bank of England’s Monetary Policy Committee voted in favour of a rise – the well known economic ‘hawk’ Ian McCafferty, former chief economist at the Confederation of British Industry.
His lone voice confounded predictions that as many as three members would send a signal that the era of the low interest rate was nearing an end.
However, immediate reaction amongst agents’ and property shares alike appeared optimistic. Shares in London agency Foxtons – which showed falls earlier in the week – rose by 0.3 per cent immediately after the announcement and ended the day 0.8 per cent up. Zoopla rose by 0.8 per cent straight away and went on to close the day over 2.3 per cent up.
More considered industry reaction has been mixed, however.
Nicholas Leeming, chairman of Jackson-Stops & Staff, says the decision should not mask the fact that interest rates are likely to rise soon. “Vendors should be aware that any such increases will create resistance to overly high guide prices” he warns.
Meanwhile Brian Murphy, head of lending at the Mortgage Advice Bureau, says: “If you’re serious about buying a house this year or think you might benefit from switching loan, the sensible move is still to act sooner rather than later.”