Matthew Henderson
Associate Director, Residential Research
With the Bank of England holding the base rate on 19th March, we take a look at what this means for the residential market ahead and the implications on mortgages.
The Bank of England has held the base rate at 3.75% amid ongoing uncertainty from the Middle East conflict.
All nine members of the Bank’s Monetary Policy Committee (MPC) voted to keep the rate at its current level.
In its announcement, the Bank said that the Middle East conflict had prompted a “significant increase in global energy and other commodity prices, which will affect households’ fuel and utility prices and have indirect effects via businesses’ costs”.
It added: “CPI inflation will be higher in the near term as a result of the new shock to the economy.”
It also said that it “stands ready to act as necessary” to keep inflation on track to meet its 2% target in the medium term.
The Bank uses the base rate as a way to keep inflation under control. Since mid-2025, the CPI measure of inflation has been on a largely downward trajectory. And earlier this year, markets expected the Bank to cut the base rate this month after inflation fell to 3% in the year to January.
But the outlook changed after conflict broke out in the Middle East at the end of February, sending energy prices up and prompting fears of a jump in inflation. Chancellor Rachel Reeves warned that the crisis was likely to ‘put upward pressure on inflation’ in the coming months.
What could this mean for the housing market?
The base rate has been cut six times since August 2024 and has remained at 3.75% since last December.
Matt Henderson, Residential Research Lead, says: “The Bank’s decision to keep the base rate unchanged was widely expected. Although the rate wasn’t cut as hoped for earlier this year, it’s worth bearing in mind that it remains at its lowest level since early 2023.
He adds: “If the price of oil comes down within a reasonable timeframe, another cut to the base rate could be on the cards this year. The likelihood of this will hinge on the duration of the current conflict.”
Guy Robinson, Head of Residential Agency, expects the housing market recovery to continue, albeit at a more measured pace than previously anticipated.
He explains: “We have begun to see green shoots in the housing market this year. Data from across our network of branches suggests that active buyers are highly committed. After a few bumps in the road in recent years, such as the Budget last autumn, many buyers now just want to press ahead.
“The vote to hold the base rate - and the wider fallout from the Middle East conflict - may prompt some buyers to sit on the fence and wait a bit longer. But it is unlikely to put off serious buyers, particularly those who have remained on the sidelines for some time.”
Guy adds that relatively speaking, the UK is widely considered a safe haven, and that London could continue to attract investment from overseas as a result of global geopolitical tensions. In his view, the city’s stability, security, time zone, educational opportunities, culture, and history, alongside more competitive pricing than a decade ago, are all key draws.
How could this impact mortgages?
SPF Private Clients reports that market expectations had been for two or three quarter-point rate cuts this year. But with those cuts looking less likely, and the possibility that the base rate may climb, Swap rates have edged upwards.
According to Moneyfactscompare.co.uk on 17 March, all of the biggest lenders, including Barclays, HSBC, Lloyds Bank, NatWest and Santander, have increased mortgage rates since the start of the month, with many sub-4% fixed-rate deals disappearing.
Matt Henderson points out that while mortgage rates have risen in the wake of the Middle East conflict, buyers are still approaching the traditional spring market with lower borrowing costs than just a few years ago.
Mike Boles, executive director at SPF Private Clients, says: “While a rate hold is disappointing for borrowers with variable or tracker-rate mortgages who would have seen a further drop in their monthly payments if it was a cut, those on existing fixed-rate mortgages won’t see any change.
“With so much volatility on pricing currently, borrowers should consider taking action and securing a rate now if they will need a mortgage in the next six months. If the situation improves, you may be able to swap to a cheaper rate at that time. If mortgage rates continue to rise, you will be relieved that you acted when you did.”