The Bank of England has chosen to hold interest rates at a 15-year high as it seeks to bear down on inflation.

The central bank’s Monetary Policy Committee opted for a third consecutive time to keep its base rate at 5.25 per cent, after opting to hike the cost of borrowing 14 times in a row.

With inflation having been reduced from double digits to below 5 per cent – albeit still well above the government’s 2 per cent target – Threadneedle Street has once again refrained from pushing rates even higher.

In a further boost to homeowners struggling with soaring mortgage costs, markets are now betting on a series of rate cuts over the year ahead, which will have a knock-on impact on the housing market and savings rates.

Indicating the improving outlook, mortgages adviser Riz Malik told The Independent that he “would have been jumping for joy” three months ago if he had been told then that the Bank’s final decision of the year would be to keep rates level.

UK ‘could see four interest rate cuts in 2024’

“Especially over past month or so there’s been a lot of downward movement in the mortgage market with pricing, especially with five-year money, five-year fixed rates – and that’s all been predicated on the expectation that we’re going to have rate cuts in 2024,” said Mr Malik, of R3 Mortgages.

But in recent weeks the question of whether there might be any interest rate cut in 2024 has now shifted to an expectation of between two and four rate cuts in the year ahead – a prediction backed up by the “flatlining” of UK plc, Mr Malik said.

“Now over the last few weeks or so, it’s transpired that it’s not ‘if we’re going to have a rate cut in 2024’ – the expectation is we might have multiple rate cuts in 2024.”

Lenders ‘will come out of the blocks fighting’ in January

“So 2024 is shaping up to be a much better year for borrowing, especially mortgage-related borrowing. We’re expecting lenders to come out of the blocks in January fighting because they’ll be desperate to grab market share to make up for the lacklustre year they’ve had in 2023,” Mr Malik added.

Some mortgage lenders are already cutting rates multiple times in the space of a week, in “small and steady” decreases of around 15 basis points.

“But come January there will be more of a smash and grab for business, and these guys will be a lot more competitive,” Mr Malik predicted.

The mortgage expert credits a recent reduction in severe market volatility – a period marked by rapid rate rises – with lenders now deciding to reduce their rates, adding: “If anything, I expect that to improve, given what the markets are pricing in, especially five-year money at the moment. Even three-year money’s becoming quite attractive going forwards.

“So even though we’ll end the year with the base rate where it is, the outlook for the mortgage market next year I think is going to be a lot more positive – and that’s going to stimulate the housing market as well.”

‘Green shoots already starting to appear ’ in the housing market

Expressing optimism for the housing market, the mortgage adviser said: “It might take the first quarter for people to start getting going, but we’re already seeing the green shoots – more enquiries from first time buyers, especially where rents have gone up quite dramatically over the year.

“We’re already starting to see a bit more activity in December than I would usually expect, and I don’t think that’s going to hold off going into next year.”

While attempting to sell property this year has “been a bit of a pointless exercise”, causing many prospective sellers to “pretty much give up”, Mr Malik predicts that “a lot of those people are going to return to the market next year”.

“The confidence needs to return into that market, and if a lot of people start talking about rate cuts, I think that confidence will return into the market, even before we do have a rate cut – especially if mortgage pricing is coming down off the back of it.

“So over Christmas, review your finances and, if you haven’t been able to sell a property in 2023, I think 2024 will be a complete different scenario. Next year I’ll have been 10 years in this mortgage business, and 2023 was by far the most challenging year that I’ve seen – so we’ve gone through the pain, and we’re expecting to come out on other side next year,” he said.

Savings rates may fall next year

Conversely, the rapid interest rate rises which caused such pain for homeowners and other borrowers in 2023 saw savings rates offered by banks rise to unusual highs – albeit still considerably below the rate of inflation.

But with interest rates now expected to fall next year, Mr Malik highlighted the negative impact on returns offered to savers.

“Anyone who’s looking at saving money in cash or fixed rate cash bonds, or those types of things, I don’t think next year is going to be as favourable, because if the base rate’s coming down, their options are going to be not as great,” he said.

“So I think 2023 for cats saving may turn out to have been the best year.:

Bank of England ‘may need to change its philosophy very quickly’

While the outlook has been rosier for mortgage-holders in recent weeks, Mr Malik suggested this could be derailed somewhat by pessimistic noises from the MPC – even if it reduces the base rate.

Talking down the prospect of future rate cuts is “probably as harmful” as actually changing the rates themselves, Mr Malik said, adding: “So maybe the Bank of England needs to talk less and just react to the economic data they’ve got in front of them, and that might help boost the housing market in the UK.”

And he expressed concern that there could be too relaxed an atmosphere in Threadneedle Street over the state of the UK economy, adding: “If the rest of the world starts doing something and the UK is lagging behind, and then we become less competitive, that’s where they’re going to have change their philosophy very, very quickly.”