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More Mortgage Rate Rises Imminent

More Mortgage Rate Rises Imminent

Despite two Bank of England Base Rate increases so far this year, industry experts expect to see another in May. How will this impact the buy to let mortgage market, and how can property investors put themselves in the best position to secure the mortgage deal they need?

The Monetary Policy Committee (MPC) is meeting again on Thursday, the 5th of May, to discuss the UK economic climate, and industry professionals expect to see another Bank of England Base Rate increase. Currently at 0.75%, many anticipate the Base Rate to rise to 1% in another attempt to curb the staggering inflation rates. At a 30-year record high, the Consumer Price Index (CPI) reports a 7% rise in inflation in the year to March. Industry experts initially expected this to be the peak; however, some are now predicting a rate of 8% this spring and further rises late this year.

There is no doubt that many lenders have struggled to keep up with the ongoing price changes, and we expect many to up their rates either before or shortly after the anticipated Base Rate increase. As a brokerage, we have felt first-hand the impact of the short-term availability of many mortgage products on the market, with mortgage products now with an average shelf-life of just 21 days (compared to 48 in August 2019). With rates being pulled shortly after being published, lenders are constantly updating their product guides. The knock-on impact is that the rate you saw yesterday and wanted to apply for might be gone today, and unless you’ve submitted a formal mortgage application, it’s gone. So, you have to start all over again.

Why are lenders changing their rates so frequently?

The cost-of-living crisis, the rising prices of energy bills, and the devastating war in Ukraine continue to impact the mortgage market. As such, brokers and borrowers increasingly have to adapt to mortgage rates being pulled by lenders, in some cases, with very little notice.

There are a few reasons why we are seeing this trend. Primarily, it’s due to the increase in the Base Rate and SWAP rates. SWAP rates are how banks charge other financial institutions and corporations to borrow money. When the SWAP rates increase, it decreases lenders’ profit margins and, therefore, they adjust pricing to continue making money. We are currently seeing lenders try and leave it until the last moment to give borrowers the opportunity to source a competitive deal while also staying profitable themselves.

Unfortunately, we are in a rather unusual circumstance. With so many Bank of England Base Rate increases due to inflation in such a short succession of time, lenders don’t know how to best prepare. Therefore, many will up their prices ahead of expected BBR increases, and many shortly after.

How can you secure your rate?

The best way to ensure that rate changes won’t catch you out is by thorough preparation. Having an experienced broker on hand will help, whether you’ve found a rate you’d like to secure or just starting out. Either way, a professional mortgage broker will be able to advise you in getting all the necessary documentation together in advance of submitting an application, which should allow for a seamless process. For most lenders, successfully submitting this mortgage application will typically be the only way to secure your rate, so it’s essential to be prepared and act promptly.

Another benefit to using a broker is that they should know ahead of time when lenders will be pulling their rates, and can therefore either begin scanning the market for a new deal applicable for you, or finalising the last-minute efforts to get your application over the line.

Mortgage lenders are highly likely to adjust pricing upwards in the coming weeks in anticipation and reaction to another BBR change. While profit margins have allowed for more minor or later adjustments during the previous increases, we anticipate more changes and more significant rises with this next update. Therefore, if there’s a rate you or your broker has found that fits the bill, don’t rest on your laurels because it might not be around for long.

If you would like support in sourcing a mortgage, our team of expert brokers have whole-of-market access, and can help source you the property finance you need. Get in touch today by submitting an enquiry, or call us on 0345 345 6788.