Bank of England raises interest rates to 4.5 per cent

The Bank of England has increased the base rate by 25 basis points to 4.5 per cent. It is the Bank’s 12th consecutive rise and comes on the back of continued high consumer price inflation (CPI) in March of 10.1 per cent.?

Seven members of the nine-strong Monetary Policy Committee voted for a 0.25 percentage points rise, while two members preferred to maintain the bank rate at 4.25 per cent. It feels as though rates are nearing their peak, if they are not there already, particularly with the Bank expecting inflation to fall sharply from April.

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 high loan-to-value fixed-rate mortgages in the past few days which will benefit first-time buyers, while the pricing of lower LTV deals has risen on the back of higher Swap rates.

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 4.25 per cent will see that rise to 4.5 per cent,?with monthly payments rising from ￡1,354 to ￡1,390.

The cumulation of 12 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 ￡1,535 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 more than the base-rate rise.?

Buyers who believe fixed rates will come down further 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.

With so much volatility in the markets, it is more important than ever that borrowers get in touch with a mortgage adviser to find out the options available to them. Rates can be booked up to six months before you need them so it’s worth planning ahead.

SPF Market Commentary Blog 11.05.23

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.