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Further Base Rate Increase Likely Amidst Market Uncertainty

Further Base Rate Increase Likely Amidst Market Uncertainty

Following a tumultuous couple of weeks in the money markets, the Monetary Policy Committee are meeting again tomorrow to discuss the state of the UK economy. Many experts predict a further increase to the Base Rate to help curb inflation.

At the end of September, we saw the sixth Bank of England Base Rate rise this year. Tomorrow’s MPC meeting had always been planned; however, no one could have foreseen the economic fallout from the mini-budget just a day after the Base Rate rose. As it stands, the Base Rate is at 2.25%, 2% higher than at the start of the year. The mortgage market chaos hit the mainstream media, and now many investors are patiently waiting to see what the Bank of England decide to do tomorrow.

The Bank of England has been increasing the Base Rate in steady increments throughout the year in an ongoing attempt to curb rising inflation levels. As the cost-of-living crisis continues to impact households and promises to get tougher in the coming months, tomorrow’s highly anticipated announcement is likely to see a further increase to the Base Rate. We expect to see an increase of between 0.5-0.75% and predict that the Bank of England will continue on the same trajectory in early 2023.

What does this mean for mortgage rates?

Despite the expected rise in the Base Rate tomorrow, we expect to see fixed-rate mortgage products slowly go down in pricing. This is because mortgage lenders use SWAP rates to price their fixed product ranges as opposed to the Base Rate.

Whilst the Base Rate is used to curb inflation levels and is used by many as an indicator of the state of the UK economy, SWAP rates have more influence over fixed rates. SWAP rates are what lenders pay to other financial corporations and institutions to get fixed funding for a specific period of time, which is typically two, three, five or ten-year fixed-rates. Lenders then use the pricing of these SWAP rates to price their mortgage products and ensure they allow for a profit margin. View our Money Markets page here for the latest SWAP rates. 

SWAP rates became incredibly volatile following the mini-budget announcements, which led to a sharp increase in mortgage product pricing and caused many products to be withdrawn from the market. Jeremy Hunt's appointment as Chancellor and his swift mini-budget reversal, followed by Rishi Sunak’s appointment as Prime Minister restored a significant amount of confidence in the money markets, causing a reduction in SWAP rates. As the market settles, we expect that lenders will be able to reduce their product pricing in line with current SWAP rate levels, albeit not to the competitive lows we saw post-pandemic.

Market volatility has, of course, left many investors uncertain over the best course of action to take. If you are having concerns, it’s more important now than ever to seek professional advice from an experienced mortgage broker. We can offer you free advice to help support you through the ever-changing market and help you make better-informed property investment decisions. To talk through your options, get in touch with our brokers by submitting an enquiry, or by calling us on 0345 345 6788.