So, the Bank of England’s Monetary Policy Committee (MPC) has once again voted to increase Bank Rate by 0.5%. The rate now stands at 4%, the highest level it has been for some 14 years. This takes the continuous rises into the double digits; it’s the tenth time in a row that the rate has been increased. As to whether we’ve reached the peak, it’s hard to say.
Looking at the language used in the MPC’s minutes, there seems to be a suggestion that the job might be done. Or at least very close to it. The smart money seems to suggest we may well hit 4.5% before this habitual programme of increases comes to an end. But that really should be it. As always, only time will tell.
The key factor here is that the Bank believes that whilst the UK will enter a period of recession this year, it will be shorter than previously thought. It expects the economy to fall slightly in 2023 as energy costs and other prices continue to ease off. It should however be noted that the recovery is likely to be prolonged.
On inflation, one of the key reasons why we are experiencing this period of pain, the Bank is now talking in more positive terms. It believes that by June of this year inflation will be around 8%, before dropping significantly to end the year around the 3% mark. That’s a big movement, which we hope (along with the whole nation), bears out.
For mortgages, the upward movement doesn’t tell the whole story
What’s really important to understand is that Bank Rate isn’t the only factor to take into account when looking at what’s happening to mortgage rates. You’ll know by now that we always talk about Swap rates, a key factor in the pricing of mortgages, specifically those of a fixed rate variety.
Swaps have slowly been decreasing for the last few months, against the backdrop of a rising bank rate, with 5-year Swaps today sitting at 3.46%. Just before Christmas they stood at 3.7%. If we look specifically at the 5-year fixed rate mortgage market, rates are hovering just above the 4% mark today, down significantly from where they were some 3-4 months ago. As the market and mortgage lenders had factored in today’s Bank Rate rise, we see no reason why they won’t stay at this level.
What should borrowers do now?
As always, if you are approaching the end of the term on a current deal you can’t start a conversation quickly enough. It looks a lot better than it did four months ago, but the reality is that borrowers are going to have to accept that we have moved into a new norm for rates. At least for a little while.
As to what product type to take, there are a wide range of influences and factors to take into account. At the highest level, there is certainly some value to be found in both the tracker and discount product set from a price perspective. We think we are at the point where there is an argument to be made for either fixing or tracking. But, as ever, that’s a generic argument. And we don’t do that. Only detailed and specific advice will do, Now, more than ever.
If you need some advice, or just want to talk things through, you know where we are.
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