What does the latest Bank of England base rate hike mean?

More of the same is expected to follow

What does the latest Bank of England base rate hike mean?

The Bank of England (BoE) has continued its trend of upping the base rate, with the latest increase raising interest rates to 1.25%.

More of the same is expected to follow, with a small number of the Monetary Policy Committee (MPC) having pushed for the rate to be increased to 1.5%.

As a result of the increase, the base rate is currently at its highest level since the financial crash in 2009.

“The figures from the Bank of England do seem somewhat incongruous to what many brokers are facing having had two very busy months indeed,” according to Nick Morrey (pictured), technical director at Coreco.

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Demand has continued to outpace supply within the UK housing market over the first half of the year, despite challenges faced by the cost-of-living crisis. As such, house prices have continued to rise across the market, with the latest Rightmove House Price Index revealing a modest 0.3% uplift in June. However, this rise represents the smallest increase since January 2022.

“With the property market still strong, albeit with a smaller house price rise in June which may signal the beginning of the end of the current boom, the reductions in lending reported almost stagger belief,” Morrey said.

Morrey added that facts are facts, so there must be a reason for the decline and he pointed toward a possible reduction in demand as the cost-of-living crisis takes more of an effect on people’s finances. It is believed that the longer the cost-of-living crisis continues, the more depleted people’s savings will become and therefore the more likely it is for people to hold off on big purchases, such as buying a property.

Looking to other suspected causes for the reported decline in lending, Morrey said: “Potential causes are likely not to be a weakening of the lending market, but a mixture of seasonally lower applications for the end of November, December and January this year, resulting in completions for April being down.”

Morrey explained that you have to mix this in with the fact that while rates are rising, brokers have been advising borrowers whose existing deals are ending in six months to secure a rate via a remortgage rather than wait for a product transfer.

On top of this, he said that solicitors are currently swamped, so purchases and remortgages are taking longer, which is resulting in a perfect storm. As the Bank of England has continued to up rates and looks set to carry on this trend, there has been an upsurge in the number of homeowners looking to switch from a tracker mortgage to a fixed rate deal, which has led to delays across the industry.

“Everything is taking longer as anyone trying to buy a new car will bemoan, so the higher levels of submitted mortgage business since February is yet to complete,” Morrey said.

Read more: Mortgage delays losing home deals

Morrey added that although part of the Bank of England’s lower figures are for loans approved, the current situation is unlikely to change for a few months yet, at least.

Instead of varying lending figures, Morrey said many eyes are on other economic indicators such as levels of unemployment and inflation. Both of these indicators have experienced worrying figures in recent times, which were kicked off by the pandemic, explained Morrey.

Unemployment has begun to improve, however, it still remains below pre-pandemic levels, with the UK employment rate increasing by 0.1 percentage points in the quarter to 75.7%, according to the June data from the Office for National Statistics (ONS). On top of this, inflation has continued to rise, with the latest data showing a further increase to 9.1% in May, following the four-decade high of 9% recorded the month before.

Morrey said that both unemployment and inflation are the best two economic indicators for the market, and reveal tell-tale signs of the near future for the mortgage and property markets.