HOME VALUATIONS CONTACT US

LANDLORD GUIDE

Are you a property landlord? If so, these features will offer guidance on tenants, insurance and everything you need.

LANDLORD GUIDE

Bank of England has Voted: Base Rate to Stay at 0.5%

The latest vote has been made by the nine-member Monetary Policy Committee of the Bank of England, and a decision has now been reached to keep the UK base rate at 0.5%. With a vote of seven to two, it has been agreed that the official borrowing rate will remain the same.

The following quotes were released 10th May 2018 in regards to this news about the base rate:

Charlotte Nelson, Finance Expert at moneyfacts.co.uk, has commented: “Today’s rate decision has dashed savers’ hopes of a better return. Savers are likely getting beyond fed up with the low rates that have plagued them for so long, which is why their hopes had been pinned on another base rate rise boosting their returns. Unfortunately, their patience will now be tested once again, as they will have to keep waiting for base rate to increase.

“Despite this, the savings market is showing some signs of positivity, with rates starting to improve regardless. The fixed rate market has had the largest boost, with competition among newer banks and higher SWAP rates fuelling the rise. As a result, the average two-year fixed rate has climbed to 1.50% today, up from 1.17% in May 2017, while the average five-year fixed rate market has grown by 0.27% to stand at 2.08% today.

“With over half of the easy access market paying less than 0.50%, it is little wonder that savers are feeling disappointed. However, savers should see this as an opportunity to assess their options and ensure that at the very least their account pays more than base rate.”

“Borrowers in fear of their mortgage repayments going up have been dreading another base rate rise. Today, they will be breathing a sigh of relief, as their repayments will not rise due to base rate, at least for now. However, this good news has not stopped the mortgage market from undergoing a period of turmoil, with rates having risen in anticipation of today’s base rate announcement.

“Gone are the days of super-low rates, with 27 providers having increased rates in April – some doing so more than twice. This has seen the average two-year fixed mortgage rate increase from 2.30% in May 2017 to 2.52% today.

“With borrowers now considering longer-term fixed rates to protect against future base rate rises, competition in this product area has seen rates increase at a slightly slower pace than their short-term counterparts, as providers compete for that business. In fact, the average five-year fixed rate has only increased from 2.89% to 2.91% over the last year.

“Despite fixed rates rising, borrowers sitting on their Standard Variable Rate (SVR) will still be significantly better off if they switch to a fixed rate deal. In fact, by switching from the average SVR of 4.73% to the average five-year fixed rate, they would be around £199 a month or £2,386 a year better off*.

“It is important for borrowers to note that there does not need to be a base rate rise for mortgage rates to increase. So, while borrowers are getting a reprieve today, anyone sitting on their SVR or coming to the end of their deal should still consider opting for a fixed rate mortgage now, before rates rise further.”

*Based on a £200,000 mortgage over a 25-year term on a repayment-only basis.

David Whittaker, CEO of Mortgages for Business, has also commented: “Like many market commentators we are not surprised that the MPC chose not to raise Bank Rate this month.

“The current economic picture is somewhat gloomier than predicted back in November. I think we will now have to wait until the August MPC meeting before we can expect to see a rate hike, although this will depend in part on the contents of the quarterly inflation report. For now, though, it’s carpe diem for mortgage-seeking landlords, particularly those who prefer variable rates.

“There is also a little three-month wiggle room for those who like a fixed rate comfort blanket. Even though swaps have been climbing over the last six months, market competition has kept fixed rates low as lenders prefer to reduce their margins than lose business, and I expect this situation to continue until August.”

Ishaan Malhi, CEO and founder of online mortgage broker Trussle, shared his view: “After all the speculation, the bank of England has chosen to sit tight today. However it seems that a rate rise is still imminent. Lenders have already started to increase the rates of their mortgage deals, so some borrowers will already have seen their payments increase as a result.

“While we’re coming to the end of an era of rock bottom interest rates, it’s important to remember that any changes will be gradual. A 0.25% increase will cost the average homeowner on a variable rate a little over £200 extra a year. But with the Bank of England hinting there could be multiple rate rises on the way, anyone coming to the end of their initial deal should look into switching to a new deal sooner than later.”

Shaun Church, Director at mortgage broker Private Finance, has said: “This month’s interest rate indecision will be music to the ears of UK borrowers as the Bank of England has delayed taking decisive action once again.

“Mortgage borrowers who are yet to lock in to a fixed term deal are playing a risky game of ‘rate rise roulette’ as it’s clear an increase still remains a case of when, not if. Those homeowners not already swept up into the recent rush to remortgage, fuelled by mounting speculation, should act sooner rather than later if they want to lock in near record-low deals and buy themselves a period of immunity from the impact of future rate rises.

“While five- or ten-year fixes may have fallen out of favour recently, now could be the time to reconsider locking into a long-term fix. What they lack in flexibility, they make up for in certainty, enabling the borrower to enjoy near record low rates for up to a decade. Last week’s FCA report on the mortgage market also hinted that nearly a quarter of mortgage customers do not switch products within six months of moving onto a reversion rate. These borrowers will have even more incentive to look at remortgaging as variable rates rise.

“When choosing how long to lock into a deal, there is no ‘one size fits all’ policy and it Is vital that consumers look at more than just the headline rate. Speaking to an independent mortgage broker can help borrowers find the best deal for their individual circumstances and the trade-off between product price and flexibility.”

x