Bank Of England Base Rate Increase

Posted on: 21 February 2023

Last week the Bank of England announced their anticipated increase in the base rate from 3.5% to 4%. I could happily bore you with my opinions of the current use of monetary policy or in fact what is driving the current inflationary pressures. The irony that Shell & BP have announced huge profits at the same time the Bank of England increases the cost of borrowing in the pursuit of controlling increase costs is not lost on me. But my remit is the property market and what are the likely effects of the rate increase?

The reality is not a great deal. I’m really sorry. I know it’s not exciting news. Not a great headline really “Nothing has Changed”. But that’s the truth of the matter. Interest rates on mortgages continue to reduce from the end of last year. The Nationwide being the most recent to reduce their rates after the announcement.

 Well, how can this be if the base rate has increased? After a disastrous summer with the slump in the pound and soaring inflation it was anticipated that the base rate would increase to 6%. So, all the mortgages priced that into their products. It now appears that rates won’t increase to these levels and therefore lenders can become more competitive with their rates.

Lets be very clear mortgage rates are going to be higher than post pandemic levels but that shouldn’t be a surprise to anyone. It is easy to forget this while we were all enjoying low rates of borrowing but that wasn’t going to last forever. It is a case of adjusting back to the norm.

So how does this all affect the housing market? Typically, we don’t all move because interest rates are low or high. We move because we need a bigger garden or an extra bedroom. We have seen house prices fall for the months of November and December, but I see with interest that the most recent report from the Halifax that house prices have stabilised in January. Personally I think it will be a blessing for everyone to have a normal market. But yet again normal isn’t that exciting.


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