Search Coreco

Footer

Bank of England Base Rate Decision

14.05.23

It was inevitable that the Bank of England would increase interest rates once more last week, this time by a further 0.25%, which took the Bank Base Rate to 4.5%, some 3% higher than it was this time last year.

This is now the highest level since October 2008 and is the 12th time in a row that rates have increased.

Whilst those on a fixed-rate mortgage will not be affected immediately, they will face higher interest rates when they come to remortgage.

For others on a tracker or variable rate mortgage, they would see more immediate changes.

As an example, on a £300,000 loan with a 20-year term remaining on a repayment mortgage, a rise of 0.25% will mean a rise of £39 per month.

On an Interest Only mortgage, a rise of 0.25% will mean a rise of £62.5 per month.

Many lenders had already started to price in this rise as SWAP rates, the cost of future funds upon which many lenders base their fixed rates on, have increased again recently in expectation of this.

Has the Bank of England Base Rate now peaked?

There are many who now say that enough is enough as far as interest rate rises are concerned, me included, as households bear the brunt of these rises on top of more general cost-of-living increases.

The problem for the Bank of England is that they risk increasing rates too far and causing a whole host of other issues for banks and for the general economy, as changes take time to filter through the system. Arguably we have not seen the effects of previous rises as yet.

The Bank of England no doubt feel that they have to act to take the base rate higher, but they have a careful path to navigate. Given the type of inflationary pressures we are currently facing there is concern that rates would have to get to an unsustainable level before having any real direct effect as they would do in a more normal environment. Going much higher in such a relatively small time period could cause more harm than good.

As ever, it seems to be a case that the Bank of England should have started slowly increasing rates earlier than they did and that they are now doing too much too late when they should already be looking further ahead.

With inflation continuing to stay more stubborn than anticipated, it looks more like the current mortgage pricing levels will stay around their current level for a while yet and continue to disappoint anyone who was waiting on the expectation that rates will start to reduce.

This shows just how hard it is to predict the market.

House Prices

Higher rates can also affect the demand for property generally, but enquiry levels and activity is holding firm.

Many buyers are adapting to the new world and for those first-time buyers who are comparing mortgage payments with rental payments, they are much more in sync.

There is an acceptance that the days of 1% and 2% loans are long gone, but also a relief that rates of 6% or more have also been diminished. Rates between 3.5% to 4.5% seem much more sustainable and a new “norm” is being established.

Whilst the pace of house price growth has already dramatically slowed, which is to be welcomed, prices remain relatively robust and will not fall by some of the more sensational margins predicted.

The sudden demise of the property market has been predicted many times, with the doom-mongers set to be confounded once again this year.

After the shambolic politics of Truss, the markets have calmed and we are starting to see people return to the market as they anchor themselves to the new norm of mortgage rates, react against ever-increasing rental costs, and look to buy in a somewhat softer market.

Supply of property is still somewhat scarce, especially in high-demand areas, which are starting to show signs of upward pressure on prices once more.

With rumours abounding that the Government may well return to demand-sided assistance with a new type of Help to Buy Scheme or similar, as well as the return of the 100% mortgage, prices could be set to begin a recovery in the latter half of the year and certainly before a General Election, where housing is likely to play a key role.

If you want to speak to one of our friendly, down-to-earth mortgage professionals about any of this, please contact us here.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

Read more posts by Andrew