Higher Bank Rate with Optimism but No Time to Rest When Homeowners Could Save

Higher Bank Rate with Optimism but No Time to Rest When Homeowners Could Save

For the first time in 14 years, the Bank of England’s Monetary Policy Committee (MPC) has raised the rate to 4.0%. This past Thursday, the MPC voted to increase the standard base interest rate by 0.5%. It marks the tenth consecutive meeting the rate has been increased. Despite the meeting resulting in a base rate increase, there was some optimistic news such as inflation may have peaked and a shorter recession than expected is possible. 

It was also noted that Brexit is having a stronger impact on the economy than had been hoped.

Ben Broadbent, the deputy governor of the Bank of England, remarked, “Brexit… has been something that has pulled on our potential output in our country and that’s been our assessment for many years.

“We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected. 

“Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged.”

The forecast is for the economy to contract during each quarter of this year and into the first quarter of next year before economic recovery begins.

Part of the change in thought concerning inflation has been attributed to the decline in gas prices in the international markets. Therefore, it should be noted that if gas prices rise again, there could be more strains on the economy to come and the outlook could change.

In December, inflation was marked at 10.5% and is forecasted to fall to 3.5% by the end of the year. The Bank’s target rate is 2.0%. The closer the economy’s inflation rate gets to target, the less likely the MPC will vote for further rate hikes.

While there was some optimism, the fact remains that despite data or numbers, people are finding it hard financially on a daily basis. Inflation has been biting away at household budgets for over a year, as well as the higher energy costs, higher interest rates, and other factors. 

There are forecasts for the base rate to increase to at least 4.5% by spring. Should things remain the same and inflation begin to decline, then perhaps a decrease in rates could occur slowly to 3.5%. 

The possibility of rate declines in 2024 or 2025 should not be taken as a given or good enough to ignore the fact that increased interest rates are causing higher borrowing costs and causing financial strains. Homeowners are especially having issues with increased interest rates due to the high value level of borrowing involved in property loans. Some homeowners have experienced increases in monthly repayments of hundreds of pounds.

According to one report, there are 1.5 million mortgage payers that could endure an average increase of £3,000 per year due to higher interest rates which is an increase of £250 per month. Depending on the amount of the outstanding loan, the amount could be greater. 

Many homeowners financed their property purchase at the time that the MPC had lowered the base rate to an all-time historic low of 0.1%. At almost zero, borrowing was so cheap that affordability was at an all-time low as well. Now that mortgage terms are ending and homeowners are facing higher rates offered through remortgages as well as with lender’s standard variable rates (SVR), cheap borrowing is no longer an opportunity of the economy.

Affordability is such a concern many experts are worried about households maintaining their repayments as interest rates have risen. It is why homeowners have been encouraged to shop for a remortgage sooner rather than later. 

When a homeowner comes to the end of their mortgage term they can either choose to remortgage or allow their lender to move them to their standard variable rate or SVR. The interest rates associated with a SVR are typically higher and therefore more expensive than the ones found with a remortgage. Also, with a remortgage, a fixed deal could be chosen to shield against further rate hikes, while a SVR will subject the homeowner to higher and higher repayments as rates are increased.

It is easy to shop online for a remortgage. By visiting the website of a remortgage broker, a homeowner could quickly obtain many quotes from a variety of lenders to review and compare. Brokers also could have exclusive deals not offered directly from lenders. Of course, a homeowner could also go from website to website of remortgage lenders to obtain quotes. 

Once quotes are in hand it is easy to determine which is the best option for a homeowner. Some are seeking the lowest interest rate available, others feel more comfortable with a long-term fixed rate deal even if it requires slightly higher interest rates. There are other homeowners seeking a fixed rate, the lowest interest rate available, and the option to cash out built up equity to get cash into hand to pay for needed expenses, upgrade or improve energy use of the home, pay down debt, or even build an emergency fund. It is up to each homeowner how they spend the equity turned into cash money.

Another MPC meeting is on the horizon on 23 March. It’s time to save money as much as possible. There are many ways to do so such as turning down the heat to save on energy costs, save by discovering alternative commuter costs, tighten up food purchases and eating takeout less, and also for homeowners it is remortgaging to save against paying more on a SVR, protecting against further rate increases, and choosing from current interest rates before the MPC takes more control over inflation with yet another rate hike.

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