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Bank of England Base Rate 5.25% (No MPC meeting in October)
Market Overview
Despite no MPC meeting this month, it’s still been a roller coaster ride, as is the norm since the Liz Truss debacle. The consensus is that the Bank of England rate has peaked and that rates will be kept on hold tomorrow which is good news for most people and provides some confidence and hopefully stability for the market. We also have the budget being delivered from Jeremy Hunt on 22nd November. Many people are predicting a stamp duty change in the budget, in order to pep up the housing market. We will wait to see what this budget brings and how this will impact the housing market.
In other news, rates continue to decrease, as SWAP rates come down and the markets predict that we have hit the peak of the Bank of England base rate. One thing we try to get over to our clients is that we have returned to a ‘normal’ interest rate market/cycle and the era of ultra-low rates we’ve all enjoyed for the last 15 years is gone. Yes, rates may dip a little, my personal view is the new BoE norm will be around 3.5% going forward but that it will take 5 years to get there. At the moment, there is a lot of volatility in the market with Wars and other political instability which spook markets. As a result, it’s just as easy for SWAP rates to increase as it is for them to decrease. So, we are in unchartered territory and no one knows what will happen, the rates are the rates and “holding on to see what happens” may well cost you more as sitting on the fence in volatile times rarely pays off, especially if you are a high Loan to Value (LTV) as a small price dip in the value of your home can push you into a higher rate due to LTV changes. Act quickly in other words.
Nationwide today announced a 0.9% increase in house prices which on the face of it seems positive news, that’s until you realise that these are typically Land Registry figures. These are from data that is nine months behind what’s happening now. I suspect that 9 months from now we will see what’s really happening with a reasonable fall in property prices.
Biggest Challenges
- 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 2 November 2023.
- Budget 22 November 2023.
Currently, with lenders, we are looking at a status quo, they 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. For example, at times like this many people want the security of a fixed rate but don’t want to commit for a long time such as 5 years in case rates drop and they are paying over the odds. Currently, there are only two lenders offering one-year fixed rates, you get the stability you want and can review things again fairly rapidly. The self-employed are still under-served by lenders in my view as well, will we see lenders change this? Well, it’s been this way for at least 23 years and counting with no major innovation etc.
Over and above that it’s a case of business as usual, yes we are seeing rates decrease but we won’t see them heading back to 2020 levels of 0.01% so clients need to realign their expectations that the rates we are at now are the new ‘norms’.
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