The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 6–3 to increase Bank Rate by 0.25 percentage points, to 5.25%.
Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%.
This is the 14th Bank Rate increase in a row.
The Bank predicts that inflation will have fallen to around 5% by the end of this year, down from 10.5% in December last year.
In the minutes of the MPC meeting, the Bank said: “CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation.
“Services price inflation, however, is projected to remain elevated at close to its current rate in the near term.”
Matthew Howlett, research executive at Opinium, commented: “As rates rise for the 14th consecutive time to 5.25%, the pressure continues to build for mortgage holders who are on or about to come onto variable rates. Opinium research has shown that six in 10 UK mortgage holders are already worried about making their repayments.
“There are a lot of factors in play for homeowners, including house prices, inflation figures, and competition among mortgage providers – and as yet, the UK public doesn’t see the situation as requiring Government intervention. Over half (52%) of UK adults oppose a taxpayer-funded bailout for mortgage holders. In fact, people are more in favour of the government giving more support to renters (47%) than to mortgage holders (36%).
“However, as the situation develops these attitudes may start to change. 1 in 10 (9%) of those who are struggling or may struggle with their mortgage payments but are not worried about covering them think the government will offer a bailout. A lack of government intervention may start to grate as more people come off fixed-rate deals and a lack of available mortgages for first-time buyers depresses the housing market.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “After 14 rate rises in as many meetings, it’s time for the Bank to press the pause button. Give this latest rate rise time to take effect and see how the markets react before deciding whether to continue with these rate increases. Consecutive rate rises have been painful; it’s time to let them do their job, rather than causing continued anxiety and distress for borrowers.
“Those with a base-rate tracker will see their mortgage rate increase by 25 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a current pay rate of 4.5% will see their monthly payments rise from £1,390 to £1,425.
“The cumulation of 14 successive rate rises is significant. A borrower with a £250,000 mortgage on a tracker pegged at 1% over base rate will have seen their monthly payments rise from £943 in December 2021, when base rate rose from 0.1% to 0.25%, to £1,649 today.
“Lenders have already priced this increase into their fixed rates so we don’t expect pricing to rise. Indeed, a number of lenders have reduced fixed rates in the past few days on the back of calmer Swaps, which underpin the pricing of fixed-rate mortgages. The extreme volatility we have seen in Swaps over the past few weeks has settled following June’s better-than-expected inflation data.
“However, while other lenders may reduce their fixed rates, long gone are the days of rock-bottom pricing. Borrowers due to come off cheap fixes face a real payment shock, so it is important to plan ahead as much as possible and act now. Rates can be booked up to six months before you need them so speak to a whole-of-market broker as to what’s available. If when you come to remortgage rates are cheaper, borrowers can choose another deal.
“If you are not due to remortgage for a year or two, pay down other, more expensive, debt, cut unnecessary spending and consider overpaying on your mortgage if possible to lessen the pain when the time comes.”
