Base Rate Unchanged – Housing Market Uncertainty

Surprising some analysts, the base rate remains at a record low, for now at least.

November 7, 2021
Base Rate Unchanged – Housing Market Uncertainty
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The Bank of England has kept the base rate of interest at 0.1% for at least another month, in a move that has surprised many financial analysts.

It had been expected that the record low rate would be increased due to rising inflation, but so far it is being held at this level until at least December.

The announcement came as many mortgage providers, including some of the biggest banks in the UK, started to hike their mortgage rates in expectation.

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What next?

There have been some calls for mortgage lenders to reverse their sudden price rises after the base rate was held. However, these are expected to be rejected. Most banks anticipate that the base rate will increase imminently, and so higher mortgage rates are deemed necessary.

That being said, homeowners are being advised to look at their current deal and consider remortgaging now if they won’t face large exit fees. While prices have risen, there are still some mortgages available with an interest rate under 2%, both for remortgaging customers or for first-time buyers with a large deposit.

These rates likely won’t be available for long, especially once the base rate does increase, and so many borrowers could lock in a good rate for the next few years and save themselves hundreds of pounds a year.

While the best deals may now already be history, the decision not to raise interest rates will give homebuyers further opportunity to lock into the low interest rates that have given a booming housing market oxygen during the past 16 months.

Lucian Cook, Head of Residential Research at the property firm Savills

On 25th October, there were 82 mortgage products available to customers in the UK with an interest rate below 1%. Within the past week, the vast majority of these have been taken off the market, with only 22 fixed rate products now below that level.

The average interest rate for 95% LTV mortgages has risen too. Last week the average was at 2.45%, and this has now risen to 2.69%. This could add £24 a month to someone paying a £200,000 mortgage.

But it’s actually people with larger deposits who are facing the biggest increase. The average interest rate for an 80% LTV was at 1.24% and is now 1.64%.

December increase looking more likely

The Monetary Policy Committee voted 7-2 in favour of no change to the base rate on Wednesday, but they have signalled that it was a close vote with many hours of discussion, and it has refused to rule out an increase when it next meets. The MPC meets every six weeks, with the next meeting scheduled for mid-December.

The MPC did say there was value in waiting to see what the impact of the end of the furlough scheme would be on the jobs market, before making a decision on the base rate. That data is expected to be available before the end of November, which is why a December decision is more likely.

Ian Lewis
Ian Lewis
Ian is an experienced writer with 15 years’ experience working in journalism and marketing. He’s worked in-house in financial institutions as well as writing freelance pieces for a variety of banking and financial trading websites.

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