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To Rise or Not To Rise? The Interest Rate Question.


It’s an interesting time to be the Governor of the Bank of England, especially as there is now a real decision to make as to whether to increase interest rates from their historical low of 0.25% or not, especially as the latest UK inflation figures came in as expected at 3%.

These were always going to be looked at as a bellwether for the next interest rate decision for the Bank of England it may be the catalyst to spur them on to increase rates in November.

Whilst the Governor narrowly avoids having to write a letter of explanation to the Chancellor, inflation is now at its highest level since April 2012 which will heap pressure on the MPC to be decisive.

The real question is whether they will have the metal to actually follow through with this move after the markets have already priced in a 0.25% rise and mortgage lenders have begun to increase their fixed rate offerings accordingly. Will it be a case of a return of the “unreliable boyfriend”?

This inflationary pressure would normally see a nailed-on response in terms of an interest rate rise, but interestingly some leading economists have been warning that the Governor should stay his hand for some time yet.

The EY Item Club warned that if he was to increase rates so soon this would be a risk given the “fragile economic outlook”. The British Chambers of Commerce and Standard & Poor’s have both said that the time is not right for a rise yet.

So once again Carney seems to be stuck in no man’s land and which way they swing remains to be seen.

We may well look back in time and see that Carney was able to control the markets without actually doing anything, but this time the whole language of not just the Governor, but by those around him as well seems to be changing.

In recent weeks SWAP rates, the cost of funds that lenders base their product pricing on have all increased, with 5-year money back over 1% once more. This is normally a prelude to mortgage lenders hiking their fixed rate products and, lo and behold, the end of last week saw just that.

Around half a dozen lender have said “enough is enough” and begun to increase their rates with rises of up to 0.25%. Don’t get me wrong this still leaves rates at low levels, but it does send a message out to everyone that things cannot stay this low for ever.

As we gear up for another budget, the housing market is back on the top of the agenda, with increases in the amount available for the oft-criticised Help to Buy Scheme as well as a plan to give councils more money to build affordable homes.

The big rumour however, ifs around Stamp Duty. Will there be a holiday period for First Time Buyers which has been effective in the past, will the lower limit be pushed up or something more dramatic.

The desperation to win back younger voters has been palpable from the Conservatives and housing is seen as a key battle ground.

We will know soon enough, but in the meantime, there are still some exceptionally competitive mortgage products around.

Currently, 2-year fixes are available at 1.15%, (3.98% APRC) and 5-year fixes from 1.69%, (3.02% APRC) whilst variable tracker rates are around from 0.99%, (3.29% APRC).

Those looking at a Buy-To-Let can obtain products from just 1.28%, (4.01% APRC) for a 2-year fix.


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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.

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