Following this month’s review held by the Monetary Policy Committee (MPC), a decision has been made to hold the current base rate at 4.75%. This decision was anticipated after the latest inflation rate figure was released, having increased from 2.3% to 2.6% in the year to November. This was the second increase in a row, climbing further away from the Bank of England’s (BoE) 2% target. It was also the highest inflation rate figure in 8 months, highlighting its persistence.
Why has the current base rate been held at 4.75%?
The base rate is used by the BoE as a way to keep the inflation rate under control. If the base rate is increased, it makes borrowing more expensive. This reduces the amount of money people have to spend and encourages saving. As such, demand for goods decreases and this slows the inflation rate, which is the rate at which prices rise.
In the year to September, the inflation rate dropped under the BoE’s target to a lower-than-expected 1.7%. As a result, the base rate was lowered from 5% to 4.75%. Following the Autumn Budget, however, the previously anticipated second cut in December was pushed back to February. With two inflation rate increases since then, both above the 2% target, and faster wage growth than had been anticipated, the BoE has had to exercise caution and maintain the base rate at its current level.
The impact on mortgages
The base rate determines how much lenders are charged by the BoE to borrow money. Any changes made to the base rate, therefore, influence the mortgage rates that lenders can offer. When setting their interest rates, lenders price in the impact that the base rate will have. In response to the announcements made in the Autumn Budget, for example, some lenders immediately increased their mortgage rates.
Property prices are continuing to rise and mortgage rates are still relatively high with, unfortunately, no sign of abating in the near future. This makes it much harder for borrowers to meet the affordability criteria when looking to buy a property. Our mortgage brokers can advise you on schemes that are available to help you with this and different mortgage types that can offer a solution.
It also makes it harder to make a decision when it comes to remortgaging. If inflation continues to rise and interest rates increase as a result, it may be better to lock in a new rate sooner rather than later. That way, if rates have increased by the time your remortgage starts, you’ll already have a better rate secured. On the other hand, if rates have lowered, you’ll be able to search for a more competitive rate.
Get expert advice on mortgage solutions
Whether you’re looking to get on the property ladder, have a fixed-rate deal nearing the end of its term or want to remortgage, we can help. We have access to an unrestricted range of first and second charge lenders as well as exclusive broker-only deals. This allows our mortgage brokers to compare the deals that meet your needs and situation. As a result, you can rest assured that we’ll find the best mortgage solution for you. To get impartial, expert advice, just give us a call on 01322 907 000.