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Is an Emergency Base Rate Rise Likely?

Is an Emergency Base Rate Rise Likely?

Following the rate at which the pound has dropped in the past week, and the ongoing staggering inflation rate, many industry experts are now expecting an emergency Base Rate rise.

Just one week ago, we reported that the Bank of England had increased the Base Rate for a sixth time this year to 2.25%. However, following the announcement of Kwasi Kwarteng’s tax cuts in last week’s mini-budget, the biggest cuts in the UK for 50 years, the pound has fallen to a record low against the dollar  - as markets lose confidence in the pound.  

Economists are now anticipating that the Bank of England will be calling an emergency meeting imminently to help curb inflation levels and keep the broader money market afloat. The next official Monetary Policy Committee meeting is not until the 3rd November; however, the emergency meeting could take place as soon as this week.

At this time, we expect the Bank of England to increase the Base Rate by at least 0.75%-1% in the emergency meeting and a further 0.75%-1% in the November meeting. As such, some industry professionals are now predicting the Base Rate could reach 6% within 12 months.

Lender activity

In the past few days, we have seen many mortgage lenders pull their product offerings entirely from the market or up their pricing. This is in anticipation of a further Base Rate hike, despite the uncertainty of when this will come. Lenders are playing the waiting game to see where the Base Rate goes, which will significantly influence how they pitch their offerings and prices. They are essentially looking to mitigate as much risk as possible and maintain profitability and service levels where they can.

As well as increases to the Base Rate, lenders will also monitor the increases to SWAP rates. With most SWAPs reaching over 5% in the last few dates, the pressure on lenders will only continue to grow.

How is this affecting mortgage applications?

Throughout this year, lenders increasing their products in line with the Base Rate has become an ongoing trend. Initially, we weren’t sure how lenders would mitigate the increased volume of applications to maintain profitability and service levels; however, we now understand how they are prioritising their workloads. Many industry professionals presumed lenders would take a ‘last in, first out’ approach, with more recent applications being turned away instead of those that had been on the lender’s radar for some time. However, what’s become clear is that this is not necessarily the case. Lenders are focused on processing cases and applications where they have all the required documentation from clients. While we believe this will give your application the best chance of being reviewed, we cannot guarantee this will be the case due to the market’s volatility. Your broker should update you on any live mortgage applications.

As a landlord, you may be wondering about the future of your investment properties. Despite the ongoing changes from lenders and interest rates, projections for house prices and yields remain strong due to the ongoing demand for properties from both renters and buyers. Many would-be first-time buyers will be sticking to renting due to the costs of mortgages. Furthermore, affordable new build developments are likely to slow down due to the cost of importing building materials and resources, which will only continue to hike with the drop of the pound. This should reassure landlords that the demand for good quality rental properties will remain constant over the next few years.

What next

It’s perhaps unsurprising that Google searches for ‘remortgage’ increased by 215% as of the 26th of September, and ‘mortgage help’ by 201%. Landlords, property investors, and homeowners alike will now be reviewing their property finances and searching the market for a deal to help them navigate rising interest rates. Despite the mass withdrawal of products we have seen over the past couple of days, mortgage products are still available – if you can be quick with your documents. The ongoing cost of delaying your mortgage is only growing, so speaking to a professional broker about what documents you need for a successful application will save you a substantial amount of money in the long run.

Call us on 0345 345 6788 or submit an enquiry today.