The Bank of England has increased the base rate by 25 basis points to 4.25 per cent. It is the Bank’s 11th consecutive rise and comes on the back of the surprise increase in consumer price inflation (CPI) in February to 10.4 per cent, after a fall from 10.5 per cent in December to 10.1 per cent in January.
Seven members of the nine-strong Monetary Policy Committee (MPC) voted for a 0.25 percentage points rise, while two members preferred to maintain the bank rate at 4 per cent. Before the inflation announcement yesterday, volatility in global financial markets was pointing to a possible hold in base rate this time around.
While 4.25 per cent may not be the peak for base rate it is unlikely to be far off. The MPC noted that while CPI inflation increased unexpectedly it is still likely that it will fall sharply over the rest of this year.
Mortgage rates
Fixed rates are influenced by future base-rate movements and therefore not directly linked to what is decided this week. Indeed, several lenders have reduced their fixed-rate mortgages in the past few days on the back of declining Swap rates, with five-year fixes now cheaper than base rate.
Those on base-rate trackers will find their mortgage rate increase by 25 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 4 per cent will see that rise to 4.25 per cent, with monthly payments rising from £1,320 to £1,354.
The cumulation of 11 successive rate rises is significant. A borrower with a £250,000 mortgage on a tracker pegged at 1 per cent over base rate will have seen their monthly payments rise from £943 in December 2021, when base rate rose from 0.1 per cent to 0.25 per cent, to £1,498 today.
With a variable-rate deal, the link between the lender’s variable rate and base-rate moves are less transparent. The lender may decide to pass on none, some, all or even more than the base-rate rise.
Buyers who believe fixed rates will continue to fall may wish to consider a variable/tracker rate product with no early repayment charges, moving onto a fix should rates become more palatable. However, if you can’t afford to be wrong – that is, if rates were to rise, you would struggle to pay your mortgage – then a fix would be the sensible option.
SPF Market Commentary Blog 23.03.23
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SPF Private Clients is authorised and regulated by the Financial Conduct Authority (FCA). The FCA does not regulate some forms of buy-to-let and commercial mortgages.