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0.5% Increase to interest rate

It comes as no surprise that when the Monetary Policy Committee met today they agreed to increase interest rates. It was almost a given that it would be a 0.5% increase.

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Today the base rate was increased from 1.25% to 1.75%, a 0.5% increase. The single highest increase in 27 years. When the Monetary Policy Committee (MPC) meets there are 9 members each with a vote. 8 voted in favour of increasing by 0.5%, and one Silvana Tenreyro voted for an increase of 0.25%.

Predictions for 2022

Analysts and industry commentators continue to predict that the base rate will sit at around 3% by the end of 2022. So more increases to follow and not a surprise as inflation continues to rise. Already the expectation is another 0.5% increase at the next MPC meeting which would the base rate rise to 2.25%.

Inflation

Inflation continues to rise and much like the base rate is expected to rise further. The current prediction is that we are likely to end 2022 with inflation running at 13%. In May it was expected to peak at 10%. The main driver remains the rise in energy prices. In October Ofgen is expected, well let's be honest Ofgen will increase the price cap that is currently holding back increases for the moment.

Energy prices or more specifically the price cap is expected to increase by 70% in October 2022. That results in an average household being expected to pay around £300 per month for Gas/Electricity.

Not that it helps but at a current inflation rate of 9.4% in the UK there are countries fairing much worse.

Mortgages

It goes without saying that there is safety in fixed-rate mortgages, depending on your circumstances that may still be the most obvious choice if your current rate is coming to an end or there is an opportunity to switch now. Of course, you should seek appropriate advice before considering this.

For new mortgage applicants, you can expect that the lenders are factoring inflation into their calculations. Some lenders I know of are increasing their essential spending calculation by between 13-20%. This means they will expect 13-20% of your net salary to cover essential spending only. That is Gas, Electricity, Food, Clothing and so on.

Savers

You may think that those with savings will start getting better returns. Whilst that should be true, Banks or other institutions are not increasing their saver rates quite as quickly as their borrowing rates.

Unfortunately, the outlook continues to be bleak, I hate to say it but bleaker than it was before and I suspect I will be saying this again before the year is out.

Lee Wisener CeMAP, CeRER, CeFAP, CSME

Having worked in the mortgage industry for over 20 years I have always wanted to build a website dedicated to the subject. Also being a geek when it comes to the internet all I needed was time and I could both build the site from scratch and fill it with content. This is it!