Bank of England raises rates by 0.5%
The Bank of England has just raised rates by 0.5% to 3.5%. Full minutes here. Newspage sought the views of brokers, IFAs, wealth managers and money experts.
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12 responses from the Newspage communityCopy all
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The increase to 3.5% was not unexpected and will have been reflected in overall mortgage pricing over the past few weeks. What is interesting is that some members of the MPC suggested not increasing rates this month. Is that a sign that we may be closer to the top than before? It's also interesting to see HSBC forecast a lower Base Rate peak of 3.75%, much less than the 6%+ we were looking at in October.
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For borrowers, my overriding message is: 'Don't Panic'. Lenders have long since priced this rate rise, and also future base rate increases, into their current pricing models. Tracker products will naturally now creep up, but we haven't seen any of the high street lenders re-pricing their fixed deals for the worse this week. This is usually common practice a day or two before a base rate announcement. The fact that a couple of members of the Monetary Policy Committee voted to keep rates at 3% suggests the base rate may not rise as much as was being forecast just a few weeks ago.
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This was so predictable, yet so disappointing. Millions of homeowners with mortgages who are already suffering with the cost of living will feel betrayed by the central bank for this. You don't cure an illness with the same poison. Every economist recognises that the economy is in free fall and that inflation is widely imported and will fall out of the figures in May. The Bank of England does not need to heap more pain and misery on society with rate increases that won't deal with the problem. The Government needs to step in here and widen the Bank of England's mandate to allow it more flexibility and compassion in its decision-making.
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This was expected. Mortgage pricing has factored this rate rise in for the past few weeks. Those on variable rates or tracker mortgages will be immediately affected by an increase in costs alongside the massive increase in the cost of living for millions across the country.
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The Bank of England has just copied and pasted what the US Federal Reserve has done. Inflation is already coming down and is predicted to fall even further. The only saving grace is the next meeting is not until February 2023, by which time the Grinch should have left Threadneedle Street.
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Happy Christmas, not. This is a move that lacks any hint of Christmas spirit, and unfortunately is going to have little effect on consumer spending. I think the MPC committee is already in holiday mode and left all rational thinking under the Christmas tree. They should have waited until January to see the December figures on inflation, which is already reducing.
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The Bank of England's latest rate increase will impact millions of households across the country, with SVRs and 2- and 5-year fixed rates all likely to increase. As rates increase, the amount people can borrow to purchase a property decreases, which will put downward pressure on house prices. While this decision may concern those borrowers who are on variable rate mortgages, the effect on fixed rate products may not be so drastic. Some lenders have already priced future rate increases into their current products. We are seeing current 5-year fixed mortgages between 5%-6%. Whilst we may see some increase, I do not expect the full burden to fall on borrowers. Those on a fixed rate mortgage that expires next year will see an average increase of £3,000 per annum.
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What this decision means is that higher mortgage rates are here to stay but, on a more positive note, that saving rates will hopefully edge higher. But even then inflation is so high that returns on cash are wiped out. We need to see inflation fall quicker than it is to change the mood music at Threadneedle Street.
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No surprises here, this has been expected for the past month. Mortgage lenders are continuing to reduce rates, with the latest announcement sent from a lender this morning.
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With many commentators expecting a full 1% rise just a few weeks ago, 0.5% feels like we dodged a bullet. There is potential for further rises in 2023 depending on how inflation moves. If we see further reductions in inflation then it reduces the argument for additional rate increases, but if it stubbornly remains slow to come down, then the Bank will need to act again. The key thing to remember is that the economy is the proverbial oil tanker and the Bank knows that changes to interest rates can take 12-18 months to filter through and impact inflation figures.
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Interestingly, two of the nine Bank of England MPC members voted to leave interest rates unchanged at 3%. This indicates that potentially the base rate won't rise much higher in 2023. There seems to be great uncertainty, even among the policymakers, about whether inflation has peaked or not. This is understandable given we don't know how the Ukraine war or the public sector strikes are going to pan out.
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Thursday's announcement was not really a shock, as it has been forecast for the past few months. Many lenders have already factored this rise into their current rates so hopefully there isn't too drastic an effect on the mortgage market.