Bank of England Base Rate 5.25% (No change)
The decision from the MPC meeting at the beginning of the month to maintain the BoE Base Rate brought further confidence to the market. This brings more assurance to many that the Bank of England rate has peaked. As a result, rates have continued to fall – aided by the fact that lenders are trying to hit year end targets. This is great news for everyone as it means better affordability.
The month brought better than expected news – inflation lower than expected, further hope that there will be no need for a further rise to the BoE Base Rate. And a recent announcement that house process are only predicted to fall by 1%. This is much less than some of the “doom mongers” in the industry had predicted.
It was announced that the UK GDP is the best in Europe, despite what the press will have you believe. We are higher than France who are at 1% growth, Germany at 0.6% and Spain at 2%. If GDP remains flat in 2024 it will be good news for mortgage interest rates as this is one of the factors that will allow the Bank of England to begin to lower rates.
One of the other key indicators for the Bank of England to reduce rates is the rate of inflation. One of the big 5 banks thinks inflation is sticky (I disagree) and they forecast inflation getting to 4.2% by the end of this year. They predict during 2024 it will drop to 3% and will only hit 2.2% (the government target is 2%) in 2025. It’s very unlikely that any reduction to the Base Rate will happen before inflation is below 3%. And at the moment we are still some way off from that. Wage growth needs to drop to 4% from its current rate of 7.8% as this is one of the major factors that’s potentially fuelling inflation. It’s higher than inflation, meaning people are outperforming the increases in their mortgage and food costs etc. This means that they have more money to spend which then fuels inflation. This is a dilemma.
But the Base Rate is only one of the factors impacting fixed mortgage rates, so improved confidence and a better long-term outlook still give hope of mortgage rates reducing.
- Vacancies in the employment market are down from over 1m to 900k, showing a contracting and slowing labour market.
- House sales are down around 300k this year to just below 1m sales a year.
- The major banks are predicting a flat market next year, with the same number of transactions.
- There is still a lack of housing stock and now there are fewer buyers too as fewer people can afford to move.
- Mortgage Market lending in 2022 was £315bn, in 2023 it will have dropped to £225bn.
- They predict 2024 will be £200bn as they are not going into the new year with the pipeline of transactions they came into this year with.
- The FTB market has not been as badly hit as the other buyers.
Most economists agree that there will be no more base rate increases which is good news (more reason to back my tracker arguments!!). With one economist predicting the Base Rate to be 4.63% in 2024, 3.94% in 2025 and 3.7% by 2026. These predictions show some good reductions coming but we all need to realise that we are not going back to sub 2% rates again.
- Rising cost of living – Smaller deposits.
- New Homes demand outstrips supply.
- Lender affordability and loan to income caps – Restricting lending.
- Lack of Government support for first time buyers.
Dates to be mindful of
- The next Bank of England base rate decision will be announced on 14 December 2023.
Lenders are constantly tweaking rates to stay on top of the best buy tables which is good as it means cheaper mortgages for homeowners, however, the lack of innovation is frustrating. We have seen an increase in the number of products available but the self-employed are still under-served by lenders in my view.
So, for us, it continues to be business as usual, yes we are seeing rates decrease but we won’t see them heading back to levels witnessed in 2020. The whole market is beginning to realign its expectations that the rates we are at now are the new ‘norms’.
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