Today’s Base Rate decision might have been expected, but after months of confidence for the market, it was by no means what we’d hoped. Here, we break down the Bank of England’s decision and explore the reality for mortgage rates moving forward.
This time last month, the industry was unanimously expecting the Bank of England to reduce the Base Rate by 0.25% today in light of improved inflation and money market outlook.
However, ongoing geopolitical conflicts and the significant impact on oil prices and mortgage interest rates meant that it simply wasn’t possible. Instead, the MPC voted to keep the Base Rate at 3.75%.
What’s caused the sudden change in money market outlook?
The Middle Eastern conflict has caused substantial disruption to global oil and gas supply chains. As a result, we’ve seen significant increases in energy and fuel prices over the last few weeks, which have had an immediate impact on capital markets, particularly SWAP rates.
The sharp rise in energy and fuel pricing has also fed directly into UK inflation predictions. Experts now predict higher inflation for longer and delayed Base Rate cuts. This means that even if we see a rapid de-escalation in the overseas conflict, it’s unlikely for mortgage rates to come down as quickly as they are currently rising.
Revised industry predictions for mortgage rates
As SWAP rates are the foundation of fixed-rate pricing, even modest increases can trigger lender repricing, as made increasingly evident over the last two weeks.
Lenders have actively increased rates or withdrawn product ranges entirely with little to no notice. However, today’s Base Rate hold will already be factored into most lenders’ current rates, so we don’t expect any drastic changes following this news.
Moving forward, the reality for mortgage interest rates is uncertain, but current indicators suggest three potential scenarios:
1. A rapid de-escalation (best-case scenario)
If we see a rapid de-escalation in the conflict, we can expect energy prices to stabilise and inflation to fall. Base Rate could fall to 3.25%, and mortgage rates would settle toward the 3.5-4% region.
2. A prolonged-but-contained conflict (most likely scenario)
In this scenario, Base Rate may remain around current levels, keeping mortgage pricing in the 4-5% range for an extended period.
3. A severe escalation or full energy price shock (worst-case scenario)
If oil prices exceed $120 per barrel again, inflation could rise sharply, forcing the MPC to raise the Base Rate toward 4.5%. Mortgage rates could then rise to 5-6%.
The next steps for buy to let landlords
As mentioned, what happens next with mortgage rates is uncertain, but today’s news shouldn’t affect current rate offerings further.
If you have a mortgage rate approaching the end of its term, even if this is months away, the best next steps for you are:
1. Secure a rate early – some lenders allow you to secure a deal up to six months in advance
2. Explore rate-switch options – some lenders allow you to move to a more competitive rate if one becomes available before you complete
3. Review your early repayment charges – if you’re some time off from remortgaging, it may still be more cost-effective to secure a rate at today’s pricing and pay a fee than hold off. It’s best to chat this through with a broker first to ensure you make the right decision for your circumstances
4. Plan ahead – Keeping an eye on SWAP rates, lender pricing changes, and money market reactions to geopolitical news helps you prepare and safeguard your property investments
Support through market volatility
This new uncertainty means now more than ever, landlords need to stay up to date with the latest news and get the right support for their property finances.
If you have a mortgage approaching the end of its term, or would like to discuss your finance options amid current market volatility, get in touch with our team. We can talk you through your options and discuss your best next steps.
Call us on 0345 345 6788 or submit an enquiry here.
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