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Is the only way (finally) down?


It’s bank rate decision day. For the eleventh time in a row, the Bank of England’s Monetary Policy Committee (MPC) has made the decision to increase the Bank Rate. The rate now stands at 4.25%. But the big question now is whether or not that’s it, and the next movement we will see, whenever that may be, will be a downward one. For a potential answer to that, we need to look further afield.

It’s been a fairly traumatic few weeks in the wider financial market (when isn’t it, we hear you ask). Last week, we saw the dreaded words that no-one wants to see hit the headlines. Banking Crisis. Across the pond a couple of banks folded, followed quickly by Credit Suisse being rescued by their Swiss counterparts UBS. Stock markets, perhaps unsurprisingly, didn’t react well, but thankfully they have recovered somewhat since then. The point here is that no-one, not least the financial markets, likes uncertainty.

Then we have the UK inflation rate. It’s fair to say that the increase in inflation to 10.4% in February (up from 10.1% in January) caught most people off guard. It wasn’t expected and therefore adds (depressingly) to that overall picture of uncertainty. That being said, the general chatter from the people that (hopefully) know best, is indicating that this was an anomaly and not a sign of things to come. Most people still believe that inflation will fall away sharply this year.

Back to Bank Rate

Pre the aforementioned issues, the sensible money seemed to be on one final half a per cent rise for bank rate. But we think that those issues, most notably inflation, have caused the MPC to just stop and think. And slightly temper their approach.

What should borrowers do now?

What’s really important to state, as we have been saying for some time, is that mortgage lenders have expected this movement in the main rate. We do not expect product withdrawals and we do not expect rates to suddenly start to rise again. Swap Rates (to remind you, the rate at which lenders lend to each other and a key factor in mortgage pricing) have been fluctuating over the last few weeks, with 5-year swaps anywhere between 3.5% and 3.8%. At the time of writing, they were 3.69%.

Looking at mortgage pricing, the best five-year fixed rates are around 4%, if you have a decent deposit or equity, and two-year fixed rates start at around 4.3%. One of the most interesting product selections can be found in the short-term discount market. Today, you can get a two-year discount with a starting rate of 4.1% (although that may well rise in line with the bank rate rise). But, if we believe that Bank Rate will fall in the next 2 years (as many commentators seem to think it will), that looks like offering pretty good value. Albeit without the unequivocal security a fixed rate naturally offers.

As always, it’s a fool’s game to provide generic advice. Only tailored advice to your specific and individual circumstances will do. We know we say this quite regularly (alright, every time), but speaking to us before you decide what to do is the only sensible decision.


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