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MPC Votes to Increase the Base Rate

MPC Votes to Increase the Base Rate

Today, the Monetary Policy Committee (MPC) increased the Base Rate by a further 0.25%, the twelfth consecutive increase since December 2021. What does this mean for the UK money markets, and what can we now expect for mortgage interest rates?

Following the MPC meeting, the Bank of England Base Rate (BBR) has increased to 4.5%.

Unlike some previous Base Rate rises, today’s announcement should not concern property investors over further mortgage interest rate increases. In fact, the increase reflects a positive shift in the UK economic activity for the rest of the year, and the years to come.

We expect today’s announcement to be the last Base Rate rise this year, with experts predicting inflation to fall substantially in the coming months. The rise to 4.5% is likely to be the final push from the Bank of England, who now are confident that UK inflation levels are under control and no longer a cause for concern.

As such, external influences such as US inflation are unlikely to impact the UK Base Rate again. Last week, the Federal Reserve and the European Central Bank increased their key rates in ongoing attempts to curb inflation levels. While they may continue to increase their rates, confidence is returning to the UK money markets, and we are unlikely to see the same activity as we did back in March.

What does this mean for mortgage interest rates?

The Base Rate does directly impact some mortgage interest rates, but not the whole market. For those on tracker mortgages that follow the Base Rate, expect your monthly repayments to rise again this month. However, there is perhaps some financial security in knowing that the widely accepted predictions expect this to be the last rise this year. As such, your repayments will unlikely change again for the foreseeable future.

On the other hand, for fixed mortgage interest rates, property investors will need to be looking at SWAP rate activity. Over the past few weeks, we have seen SWAP rates stagnate between 3.8-3.9%. As a result, the cost of funds that lenders must pay to borrow fixed money has not changed, which explains why there has been little movement in mortgage interest rate pricing.

With inflation still high in the US and across Europe, it’s highly unlikely we will see much of a decline in SWAP rate pricing anytime soon. Positively, this means that interest rates are stable, and lenders will be doing all they can to keep their product criteria and offerings competitive in more ways than just cheaper pricing.

Will the Base Rate fall next year?

Some forecasts anticipate the Base Rate will fall to 3% by the end of next year, and then to 2.5% by the end of 2025. However, with SWAP rates working as a benchmark for where interest rates are likely to go, it’s unlikely these declines to BBR will cause mortgage interest rates to fall to the considerable lows we saw throughout the pandemic.

If you would like to discuss your property finance options, then please contact our expert brokers on 0345 345 6788, or submit an enquiry here.