A Further Base Rate Rise… 22nd June 2023
A further Bank of England base rate rise was expected to be announced today, but a “double” hike has taken many by surprise.
The recent 0.25% rises have not been enough to bring inflation under control, resulting in 7 out of the 9 members of the Monetary Policy Committee voting for a 0.5% increase this month.
The base rate now stands at 5%, the highest level in 15 years.
Inflation
The decision comes as the rate of inflation remains at 8.7%, higher than the predicted 8.4%.
Mortgage time bomb?
This will not be welcome news to homeowners and those looking to get on the housing ladder, who will now be facing a mortgage crisis.
House Price Fall – 7th June 2023
According to Halifax, the UK’s largest mortgage lender, there has been a 1% fall in house prices compared to a year ago. This is the first fall for over 10 years.
This translates to an average £3,000 drop in typical house prices year on year, and a £7,500 reduction from the August 2022 peak.
Nationwide has confirmed a deeper fall, with a 3.4% reduction in house prices.
Why have house prices fallen?
Halifax says higher borrowing costs, following the recent base rate rises, were affecting confidence in the housing market, with both buyers and sellers adjusting their expectations.
Mortgage rates have risen in recent weeks, with a number of fixed rate products withdrawn at short notice over the weekend.
Will prices continue to fall?
Time will tell whether this is just a price adjustment or if rising interest rates and the cost of living will continue to be felt by those trying to get on the housing ladder. But investors and developers will also need to adjust their expectations as profit margins could be squeezed.
If you need to know more about short-term and bridging rates, please do not hesitate to get in touch.
Bank of England Base rate – May 2023
The Bank of England base rate now stands at 4.5%, with 0.25% increases seen in both April and May 2023.
The May increase marked the 12th consecutive hike amid the Bank’s continuing efforts to control inflation but this is being hindered by record food prices, which saw a 19% jump in the 12 months to March 2023.* (Source: The Office for National Statistics)
Borrowing rates are now at their highest level in almost 15 years.
Why does the Bank of England raise interest rates?
The Consumer Prices Index, which rose by 10.1% in the 12 months to March 2023 (down from 10.4% in February) is five times over the Bank of England’s target of 2%. By increasing interest rates, central banks can try to reduce the rate of inflation. This leads to consumers having less surplus income to spend on good and services, which should in turn lead to lower prices. However, at the present time, consumers are still facing record high prices which has caused some to question whether further increases will be effective in the current economic climate.
What’s the outlook for the Bank of England base rate?
Financial markets are predicting further rises with rates expected to hit 5% before the end of the year.
The expected fall in energy prices from July is welcome news to UK households but anyone coming to the end of a fixed rate mortgage in the coming months is going to feel the increase in their monthly repayments.
The Bank of England has raised interest rates
The Bank of England has raised interest rates for the 10th time in a row, but analysts predict it is nearing the peak. The benchmark rate has gone up from 3.5% to 4% following the latest Monetary Policy Committee meeting. The rate is at its highest level for 14 years. The impact of a rate rise will be felt by borrowers – through higher mortgage and loan costs – and in better returns for savers across the UK.
UK price inflation fell for the third month in a row to 10.1% in the year to January from 10.5% in December. The biggest factors in the rate slowing were decreases in fuel prices and the cost of dining out. To calculate inflation, which measures the increase in the price of something over time, the Office for National Statistics (ONS) keeps track of the prices of hundreds of everyday items. If it falls, it does not mean the prices of goods are going down, it just means prices are rising more slowly. Many analysts believe inflation will continue to fall, although it is still currently five times the Bank of England’s target of 2%.
Source: BBC