The Bank of England’s Monetary Policy Committee (MPC) has increased the Bank Rate to 3.5% from 3.0%.
The MPC voted by a majority of 6-3 to increase Bank Rate by 0.5 percentage points, to 3.5%. Two members preferred to maintain Bank Rate at 3%, and one member preferred to increase Bank Rate by 0.75 percentage points, to 3.75%.
The majority of the Committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “While 3.5% may not be the peak for base rate, we don’t believe it needs to, or can go, much higher.
“Fixed rates are influenced by future base rate movements and therefore not directly linked to what is decided this week. Indeed, the pricing of fixed-rate mortgages, which soared after the mini-Budget, continues to drift slowly down, with five-year fixes breaching the 4.5% barrier this week and expected to drop below 4% in the new year. Come 2023, we could see five-year fixes priced below base rate.
“Those on base-rate trackers will find their mortgage rate increase by 50 basis points and monthly payments will go up accordingly. For example, a borrower with a £200,000 repayment mortgage with a 25-year term and a pay rate of 3% will see that rise to 3.5%, meaning their monthly payments will rise from £948 to £1,001.
“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 even more than the base rate rise.
“If you’re looking to secure a property but believe fixed rates will continue to fall, you could consider a variable/tracker rate product with no early repayment charges, moving onto a fixed product when the rates are more palatable.
“Borrowers who are worried about paying their mortgage should get in touch with their lender. It may be possible to extend the term of the mortgage, change to interest-only or part interest-only/ part repayment. There are implications in making these adjustments but borrowers could do this on a short-term basis and when the opportunity arises, move back to full repayment, making overpayments to get back on course.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “Such a substantial increase in base rate is alarming, particularly for its impact on confidence to buy property, which can compromise activity in the housing market.
“However, this rise has been expected for some time, with lenders already factoring it into pricing of fixed-rate mortgages. Indeed, brokers tell us that they don’t expect these to go any higher; if anything, they are likely to stay the same or continue falling slowly.
“Existing sales are proceeding, while new buyers are thin on the ground and deciding on next steps over the holiday period. We expect them to slowly return but negotiate hard, aware that the balance has shifted very quickly their way and they will do their best to take advantage.”