MPC Meeting Rate Hold Leaves Uncertainty for Homeowners to Wait or Not

MPC Meeting Rate Hold Leaves Uncertainty for Homeowners to Wait or Not

The first meeting of the year for the Bank of England’s Monetary Policy Committee (MPC) occurred on 1 February. Following a slight increase of 0.1% of the inflation rate in December which moved it to 4.0%, double the Bank’s target rate of 2.0%, the committee voted to leave the current base rate at 5.25%. The current rate is the highest since 2008, however the meeting offered insight into the forecast for a possible rate cut later in the year as inflation is expected to drop below target in May.

Andrew Bailey, the Bank’s governor, remarked, “We have had good news on inflation over the past few months. It has fallen a long way, from 10% a year ago to 4%. But we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.”

The meeting marked the fourth consecutive meeting in which the rate has held steady. 

Despite the forecast for a drop below the inflation rate target in May, there is the accompanying warning that inflation is likely to kick upward again due to the higher impact from wage growth and the lowering impact cheaper energy prices have had on inflation. The forecast is for inflation to grow to 2.75%. While above target, it is not the double-digit inflation rate of 2023.

According to experts the year could bring as much as a cut of one percentage point to the standard base rate. The economy is expected to have an upgrade in the forecast for the year to one of growth versus zero growth.

The minutes of the MPC meeting revealed the majority vote was for the rate to hold, but there were two members voting for an increase of 0.25% to the rate and another voted for a cut to the rate. 

The optimistic forecast for the UK economy is based on current viewpoints, and things could shift as any major change develops due to the continued conflicts in the Red Sea, the Israel-Gaza war, and the Ukraine conflict with Russia. 

While there is good news for the near future, there is still an element of uncertainty and that could translate over to borrowers. 

Lenders are likely to be calmed and consider the risk of borrowing to be lessened and it could offer a return to the robust competitive lending market that developed only weeks ago. Those lenders that feared a less than optimistic outlook and pulled their best rates, might return them soon. Meanwhile, more low interest rate deals could begin showing up on the lending market by the close of the week or early next week.

This should grab the attention of borrowers that feared they might have missed the unexpected better offers from lenders as the nearing of the MPC meeting triggered a few rate hikes on mortgages and remortgages. Still offers are attractive with some extremely near or even below the base rate of the Bank. 

The question on the minds of homeowners will be whether to remortgage now or wait out a possible rate cut following the return to target inflation by May. If indeed the rate drops below the 2.0% level, the anticipatory rise could put MPC members on alert. They might not immediately offer a rate cut by June. 

Also, borrowers should be aware that as demand for borrowing grows, lenders could back off their best offers to slow demand. The competitive market is of course to grab the attention of borrowers, and once that has been achieved, there is no longer the need to offer such low interest rates as currently offered.

Home buyers and homeowners will have to make the decision on whether to borrow now or await a possible rate cut in the second quarter of the year, but there is no guarantee the deals then will be better than now, even if the MPC votes to lower the base rate.

For homeowners coming to the end of their mortgage term soon or for those that have already done so, the decision will weigh on whether they can afford not to remortgage and be moved to their lender’s standard variable rate (SVR). By avoiding a SVR with a remortgage, the homeowner, depending on the rates they qualify for, could save a substantial amount of money. 

It is simple and fast to determine what deals are available by shopping for a remortgage online. Remortgage brokers might have exclusive deals from lenders not offered directly to borrowers, and they could offer many quotes from numerous lenders making online shopping faster. The homeowner could also shop from one lender website to another to gather quotes to review and compare. 

There is no easy answer for whether to remortgage now or wait and pay on a higher SVR hoping for lower rates later. Homeowners must make the right choice for their own individual and unique needs. 

Avoiding a SVR with a remortgage and awaiting lower rates protected by a fixed rate is a possibility even for those hoping for lower rates. Homeowners could have the option to end their term early to remortgage at lower rates, but there will likely be a penalty fee. Taking the fee and the savings of a lower rate would need to be reviewed to determine the actual cost or savings of an early remortgage decision.

While there is likely to be a rate cut from the current 5.25% which matched the rate of February 2008, sometime this year, borrowers should not expect a return to the historically low rates of 2021 and 2022. Therefore, consideration of choosing a deal now or later is one that should take careful thought and might be aided by shopping for a remortgage online for quotes to compare savings, financial security, or even simply peace of mind.

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