Bank of England increases base rate to 4%

The Bank of England has announced that its Monetary Policy Committee (MPC) has voted by a convincing 7-2 majority to increase the UK’s base interest rate by 50 basis points to 4%.

This marks their highest level since 2009 and is the tenth time the Bank has raised rates since the start of 2022.

This comes as Threadneedle Street continues its efforts to stem inflation of 10.5% – over five times higher than its 2% target.

2022 saw the ultra-low interest rates of the past decade left behind, with the impact of which now visible in mortgage activity data released by the Bank of England in early February. Specifically, the number of approvals for houses fell by nearly 11,000 – or 23% – from 46,200 to 35,600 between November and December.

This shows a housing market “in the midst of a significant slowdown”, suggested Karen Noye, mortgage expert, Quilter, adding that the past few months have seen a “sizeable fall in the level of demand” amidst rising rates.

This is somewhat reflected in analysis shared by Lucian Cook, Head of UK Residential Research, Savills, which revealed that newly agreed sales are “subdued” with new instructions also having fallen beneath pre-pandemic levels. Encouragingly, however, fall-throughs are beginning to reduce:

Source: Savills. Data from TwentyCi. Analysis from Lucian Cook.

Encouragement can also be taken from recent data released by Quilter that suggested that, with interest rate rises such as this having already been accounted for in mortgage rates for a while now, homebuyers could actually see mortgage payments fall by as much as 25% by the end of the year.

“For those considering taking out a fixed mortgage deal soon, the good news is that this increase was widely expected by the financial markets and will have likely been factored into their plans,” said Rightmove’s property expert Tim Banner, continuing:

“This means that we may see fixed-rate mortgage deals continue to edge downwards in the first half of this year, as some stability and calm continues to return to the markets.

We’re still seeing buyer demand higher than the last normal housing market of 2019, indicating that people have the confidence to get on with their moves and if fixed deals do head further downwards this may encourage people further. We may see further increases in the base rate later this year but it’s difficult to predict how it will impact mortgage rates.”

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