Market Commentary With Assad Ali BSc, CeMAP, DipCII

Changes in base rate effects nearly everyone that has secured and unsecured loans or any money in a savings account with any bank or building society. 

One may ask why is the BOE putting the base rate up? This is in an effort to control the spiralling cost of goods, also known as inflation. BOE target keeping inflation at the 2% mark however, currently it is around 10-12% depending on what price index you use. When the BOE puts the rate up, it makes borrowing more expensive for household and businesses. Variable rates go up on mortgages and business loans and also credit card debts costs increase. This increased in cost encourages people to spend less, which in turn reduces the cost of goods due to demand of goods being low due to higher cost. This increase in base rate then helps to reduce inflation. 

Following the mini budget on 23rd of September 2022 released by ex-PM Lizz Truss and the ex-chancellor Kawasi Kwarteng, the market reacted to it in an unimaginable way. Cost of mortgage lending increased over night and the mortgage rates increased from 3% to between 6 and 7% in the matter if few weeks. Some lenders pulled out of the market temporarily and the number of mortgages available in the market fell significantly. Higher interest rates and higher cost of energy made mortgages unaffordable for most consumers that were looking to buy during the time of the mini budget. 

Eventually the markets won, Lizz Truss resigned with Rishi Sunak taking charge of the UK economy with the help of the current chancellor Jeremy Hunt. Since then another new budget was released which markets liked resulting in reduced volatility in the mortgage markets. 

Even though BOE base rate has been going up, which normally increases the cost of the mortgage interest rates most lenders have actually started to reduce their mortgages. This is a good news for borrowers who are looking to get on to a property ladder or simply looking for another move. Lenders restricted their mortgage range in September which now has been increasing each week since December. Mortgage rates are getting more competitive and are better reflecting where the BOE base rate currently sits. 

We have been in a low interest rate environment for nearly a decade but the current interest rate now seems to be the new norm going forward.

Further good news is the lenders are open for business even for the borrower with a 5% deposit.