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3. It’s anything but the magic number



So, the Bank of England’s Monetary Policy Committee (MPC) has voted to increase interest rates again. They now sit at 3%. It’s the eight consecutive rise in rates, but today’s announcement sees them raise the rate by 0.75%, which is the biggest single rise in the cost of borrowing since 1989. Ironically, proving that 3 is anything but the magic number, that was 33 years ago.


Whilst, at first glance, this seems somewhat eye-watering, it was expected by the market and, importantly, mortgage lenders. The increase has been factored into the cost of mortgages and we are not expecting huge swathes of product withdrawals. As you all know by now, the Bank is desperately trying to curb inflation which now sits at 11.6% - almost six times where it should be at 2%.


In its economic forecast, that accompanies its rate decision, the Bank has warned that the UK is facing its longest recession since the great depression, almost 100 years ago. There’s no way to sugar coat that, it sounds pretty dreadful. That being said, there was some good (relative of course) news from the Bank.


Let’s call it a bronze lining.

With today’s announcement, the bank did something that it normally doesn’t reveal in its published minutes. And that was to give future guidance on where it sees interest rates peaking. It believes, reading somewhat between the lines, that that peak will be around 4.5% next Autumn.


Last month, in our bank rate comment we highlighted that we thought that 5-6% was a little high for predictions of where rates would peak, so we are pleased to see that the Bank, at least for now, seems to agree.


That being said, we’ve called it a bronze lining because it very much depends on your own perspective here. On the one hand, it means there are more rises to come. But, on the other hand, it is significantly lower than the much-mooted 6% that was widely being talked about after the turmoil of the mini-budget aftermath.


What should borrowers do now?

As we briefly hinted at above, we think that this rise has been factored into mortgage pricing from many lenders. Interestingly, over the last week or so, some of the big lenders have been decreasing the rates on their products. For most of us, that’s more welcome than a magnum [or insert your own ice cream of choice] on a hot day.


We still remain in the position of not really knowing, at least generically speaking, whether fixed rates or discount rates are the product of choice right now. If we are to take the Bank at their word and believe that the highest rates will go is 4.5%, then there is certainly value to be had in the discount and tracker market. But one thing we do know for certain right now. Nothing is certain.


At the risk of saying what we have been saying for quite some time now, only individual advice will do. We know we have somewhat of a vested interest here, but we really believe that if ever there was a time to get professional mortgage advice based on your unique circumstances, it is now. Of course, we’d love you to do that with us. But, no matter what, do it with someone. If you need us, you know where we are.

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