The Bank of England has announced a new increase in the Base rate, raising the cost of borrowing by another 0.5 per cent to 3.5 per cent, a level last seen 14 years ago.
Although the Consumer Prices Index (CPI) rate of inflation was revealed to have fallen slightly to 10.7 per cent in November from October’s level of 11.1 per cent, the Monetary Policy Committee (MPC) was mostly convinced that further action was needed.
The decision was not unanimous; six of the nine members voted for the third 0.5 per cent rise in a row. One member wanted to see a 0.75 per cent increase, while two members believed enough had been done for now to tighten monetary policy and supported keeping the rate at three per cent.
While this lack of unity may mean there is less certainty that there will be significant further increases soon, anyone seeking a mortgage now will be wise to take the best advice available from a local independent mortgage advisor about the kind of mortgage they should be looking for.
A fixed rate deal might price in future increases, but also protect against any increases above expectations, while a variable or tracker rate will involve needing to be prepared for future rises in monthly payments, while offering the possibility of benefitting from any future cuts in the rate.
Although the very low cost of borrowing since 2009 has been an historical anomaly and the latest increase takes the situation back into the realms of normality, this has placed significant strain on borrowers looking to renew mortgages during a cost of living crisis.
The MPC meeting minutes indicated that the CPI rate is set to drop gradually in the early months of 2023 and rapidly from the middle of the year, but it also stated that if the projected path of inflation continues, further rate rises will be needed.
