Bank of England holds rates while signalling more easing is likely

The Bank of England today voted to hold the base rate at 3.75% on Thursday, though a growing number of the Bank’s rate setters believe that borrowing costs need to fall.

The decision was widely expected, but it comes against a more complicated backdrop for the housing and mortgage markets. Inflation remains above target, and recent economic data has been strong enough to temper expectations of near-term rate cuts. As a result, financial markets had scaled back bets on easing this year. Several major lenders, including Nationwide, NatWest and Santander, have already responded by increasing mortgage rates across parts of their ranges.

But Thursday’s decision should provide some stability to mortgage rates. Four of the nine rate-setters voted for a 0.25 basis point reduction. Two of the five that voted to hold said there was now a greater risk that inflation would undershoot the 2% target, though the “weight of evidence was yet sufficient” to warrant voting to cut. The remaining three believe “a more prolonged period of policy restriction was likely to be warranted.” The decision increases the likelihood of another cut during the spring, and perhaps another before the end of the year.

Buyer activity

Housing market indicators suggest activity is recovering. UK house prices rose by 0.3% in January after a 0.4% fall in December, according to Nationwide. That modest rebound aligns with other measures pointing to a pickup in buyer activity at the start of the year, after uncertainty ahead of the Autumn Budget dampened demand in late 2025.

We’re seeing similar patterns in prime markets. A combination of buyers and sellers acting before the November Budget due to speculation over property taxes, then the subsequent relief that mansion tax rates weren’t set higher, contributed to a recovery in activity in prime markets during the final weeks of 2025. The number of exchanges above £5 million in London during the last three months of the year was 29% higher than in 2024, according to the latest Knight Frank data. Average prices in prime central London fell 5% in the 12 months to December.

First-time buyers remain a relative bright spot. Activity in this segment was 20% higher than a year earlier, supported by a recovery in high loan-to-value lending, according to Nationwide figures. Santander’s recent launch of a five-year fixed mortgage at 98% loan-to-value highlights growing lender confidence in this part of the market, despite broader uncertainty around rates.

New projections

Looking ahead, the outlook for interest rates remains finely balanced. While recent data has pushed borrowing costs higher, there are growing signs that the labour market may weaken more rapidly than the Bank of England currently forecasts. Most forecasters believe as many as two futher reductions are likely this year. New projections from the National Institute of Economic and Social Research, for example, suggest unemployment could rise to its highest level in more than a decade later this year, creating scope for the Bank to cut rates twice to 3.25% by year end.

For now, the recovery in housing market activity appears fragile. Further progress will depend on whether affordability continues to improve, or whether mortgage pricing begins to ease again as the year unfolds. In this environment, borrowers may benefit from securing a mortgage rate early – lenders generally allow rates to be renegotiated ahead of completion. Speaking to a broker can help clarify available options and provide flexibility should pricing improve later in the year.

If you are considering purchasing or remortgaging a home, book a consultation with one of our experienced brokers. We have relationships with over 200 lenders and we’d be happy to walk you through your options.