The Monetary Policy Committee (MPC) has voted to increase base rate to 4%, the first rate rise in three years.
While we would have liked to have seen the Bank continue to be brave and hold base rate at 3.75% for another month, it was perhaps inevitable that it would bow to inflationary pressure and vote for an increase.
With eight members of the MPC voting for a quarter-point rise in rates, and the ninth member wanting to go further with a half-point increase, there may well be another hike at the meeting in December, or early next year. Borrowers should therefore review their situation without delay and take action if needed.
While inflation rose to 3.5% in the 12 months to September, there is still limited evidence of second-round inflationary effects which the Bank had been concerned about. Higher mortgage rates, regardless of the hold in base rate throughout the year, have acted as a tool to reduce borrowers’ spare cash and therefore spending, which would have risked pushing inflation higher.
Current fixed-rate mortgage pricing is based on market expectations of four quarter-point increases in base rate. Should the financial markets start to see this as the near-term peak in rates, Swap rates, which underpin the pricing of fixed-rate mortgages, should drop and mortgage rates should follow which will be welcome news for borrowers.
Some borrowers are opting for base-rate trackers rather than fixed-rate mortgages as the former are priced considerably lower than latter, at least initially. However, this approach should only be considered by those who can afford to be wrong – that is, if rates were to rise further, they could still afford their mortgage payments – and it’s important to take advice.
Although average mortgage rates are reported to be at a three-year high, with Barclays, Halifax and Nationwide all repricing downwards this week there may be cheaper deals available. Borrowers should speak to a whole-of-market broker such as SPF Private Clients and consider locking into a rate sooner rather than later.
