Base Rate increase getting closer
A subdued Inflation Report earlier in the month, and comments from Bank of England Governor Carney that were widely interpreted as ruling out any increase in Base Rate this year, led to money markets dropping, sterling weakening, and mortgage lenders started reducing their rates again.
However this week it was revealed that two members of the Monetary Policy Committee voted to increase rates. Base Rate has been at 0.50% for over, and this is the first time anyone has voted for an increase since June 2011.
Back then three members of the MPC had consistently voted for a rise for around 6 months (one of whom, Martin Wheale, was among the two this time – the others are no longer members) but then the European situation deteriorated and pressure eased.
So whilst nothing is guaranteed, there is more confidence about future moves this time around, and that leaves borrowers with a dilemma.
Over the last week or two mortgage lenders including Virgin Money, West Brom, Coventry, Clydesdale, Birmingham Midshires and Natwest have improved rates, and Woolwich has just launched market-leading 5-year fixed rate mortgages.
Standard form would now dictate that fixed rate mortgages start increasing again, but so far market reaction has been muted, and so it’s finely balanced.
On one hand, as a Base Rate move gets closer, pressure to increase rates will grow and waiting too long could mean missing out. On the other hand, the traditional year-end push means lenders will resist it as much as possible, and if the money markets stay low rates may yet fall further.
Only time will tell. In the meantime prospective buyers are best served by focussing on their immediate needs rather than second-guessing the market.