The Bank of England Monetary Policy committee (MPC) today increased the Bank of England (BOE) base rate to 5%, the 13th base rate increase in a row.
The UK’s central bank increased the Base Rate to 5% after last month’s increase failed to bring down inflation as much as had been hoped. It had been hoped the rate would only increase 0.25%. National Word reported the UK was not only an international outlier with its headline inflation rate, but it is also seeing some of the worst food price hikes in the western world.
In the mortgage market lenders have already been reacting to the expected increase by pulling interest rates with little notice and increasing their fixed rate offerings.
What is the Bank of England Rate?
The BOE uses its interest rate to maintain the value of the pound.
When inflation is high, the spending power of the pound is being eroded. What that means is we are all becoming worse off.
One measure that can be used to slow inflation is to increase the central bank rate. Increasing the BOE base rate makes borrowing money through the economy more expensive. When borrowing costs increase, business and consumer spending is likely to reduce. By slowing down spending and (in theory) increasing savings levels, demand for goods and services should be reduced pushing down prices.
What about house prices?
According to property website Rightmove house prices have dropped for the first time this year. The average price of a home coming onto the market fell £82 last month to £372,812, the first drop in June since 2017. Looking at the numbers on an annual basis, prices have risen 1.1% over the year to June 2023.
What’s happening with Mortgages?
Last week alone, HSBC, Nationwide and Nat West all increased rates on certain mortgage products, whilst several other banks have increased rates twice in the same week.
Analysis by the economic think tank the Resolution Foundation published over the weekend estimates that more than 1m homeowners who will roll onto a new mortgage this year at significantly higher rates will have to swallow a near £3,000 jump in average annual repayments.
What should you do?
Steve Clements, Senior Mortgage Consultant at specialist contract broker Professional Contractor Mortgages had this to say “I have been speaking with a number of my clients who are concerned about the impact of bank base rate increases. We had hoped that last month would signify the top of the market for rates but inflation continues to be a stubborn issue”
He continued “Regardless of whether you are looking to purchase a property or secure a new mortgage rate, my advice is the same. Engage with a broker as soon as possible to start looking at the options available. Lenders are still looking to approve mortgage funding and there are still some competitive options available, you just need to look a little harder which of course we can help with”
If you are looking at a new purchase or to remortgage at the end of your current deal, speak with one of the PCM team as soon as possible. The advice may be to hold tight, but 10 minutes of your time could help form a plan that could save you a lot of money and time in the future.
Call Professional Contractor Mortgages on 02394 212912 for specialist advice from our qualified mortgage brokers, or complete our online contact form here.