The Bank of England has today raised its base rate for only the second time in 10 years, in what appears to be a slow but inexorable trend. The rate has risen by 0.25% to 0.75%. This will be the highest level it’s been since March 2009 – see chart.
The expected increase in May never came as the economy was going through a bit of a dip after the harsh weather in the first quarter. But although inflation appears to be well under control, and wage inflation is still relatively low, The Bank’s Monetary Policy Committee has taken some commentators feels is a bold step.
However, Mark Carney and the MPC now confident enough to raise the rate a notch, concluding that the dip was a temporary one, and that economy is growing again, boosted by the good weather over the spring and summer. This view is supported by sustained household spending despite a spate of store closures over the preceding months and wage rises starting to edge ahead of inflation again.
The move will increase the interest costs for anyone with a variable or tracker mortgage, but it will come as a welcome relief and a sign of things to come for those savers who are dependent on income from their investments. Mr Carney has suggested that rate rises will be gradual and would most likely be as little as 0.25% per year.
Angus Stewart, Chief Executive of Property Master, said of today’s Bank of England Monetary Policy Committee decision to raise the base rate:
“A rise in base rate has been trailed for quite some time so today’s announcement will not come as a surprise to many. The economy seems to have recovered its bounce following bad weather earlier on this year and this better economic data has finally forced the hand of the Bank. “
Source: Bank of England
Mr Stewart continued:
“Our recent July Mortgage Tracker which follows rates and fees from 18 of the largest lenders in the buy-to-let market showed that the cost of popular buy-to-let fixed rates deals has continued to fall since the start of the year.
“Five-year fixed rate mortgages have been particularly competitively priced with the monthly cost of borrowing a typical amount of £150,000 falling between £11 and £24 compared to the cost if the loan had been taken out in January.
“Given today’s news of a base rate rise landlords who are looking to borrow to buy a new property or refinance their existing portfolio may need to move very fast indeed if they are going to benefit from some of the good deals we have seen.”
James Davis, Founder and CEO of Upad.co.uk comments:
“Given that the Base Rate was kept at 0.5% in May of this year, today’s announcement of an increase to 0.75% really shouldn’t surprise anyone. If anything, I believe landlords actually stand to benefit.
“Simply, Upad’s own data suggests that over 50% of landlords are on fixed rate mortgages which means they’ll experience no immediate impact and when they do come to refinance, the currently available mortgage products are likely to have been superseded by more competitive products anyway. By all accounts that means that many landlords stand to make lower repayments in the future.
“Moreover, for landlords looking to go onto a new product in the near future, this rate rise has been long anticipated, and lenders have already incorporated it into their current rates given that the 12-month Libor SWAP rates started increasing at the start of this year.
“However, this isn’t just about mortgage interest rates – it encompasses so much more of the housing market. On the one hand, there’s an on-going lack of affordable housing for purchase which maintains a level of buoyancy in the rental market. At the same time, this small rate increase could knock confidence in the housing market, meaning people chose to rent for longer. Either way, I believe landlords have nothing to fear and everything to enjoy!”
About Property Master
Property Master launched in May 2017 and is the UK’s first and only digital mortgage brokerage service for UK buy-to-let landlords. Its innovative approach enables private landlords to take control of their financing online. Founded by a group of highly experienced financial services professionals, the company is directly authorised and regulated by the Financial Conduct Authority (FCA).
Upad began in 2007 and has grown into the UK’s largest online lettings agency by offering a simpler, more cost-effective way to find tenants and let a property. This has proved equally popular among landlords who previously used a high street letting agent to find tenants as well as those who used classified channels. Last year, Upad helped rent over 10,000 properties.