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12:08 PM, 2nd August 2018, About 6 years ago 13
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The Hawks have it. The Bank of England’s Monetary Policy Committee have voted unanimously to increase the Base Rate by 0.25% to nearly a decade high of 0.75%
Given the economic outlook, productivity gaps, strength of the pound and Brexit uncertainty I see this as a short term decision if not possibly one that will be undone later on down the road.
The 0.25% base rate increase will add £208.33 a month to the expenses of landlords for every £1 million of interest only tracker rate mortgages. Given that private landlords are being targeted with Section 24 restrictions on finance cost relief, this could hurt.
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Show Book a Tax Planning ConsultationThe summary of the MPC decision states:
“Since the May Inflation Report, the near-term outlook has evolved broadly in line with the MPC’s expectations. Recent data appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter. The labour market has continued to tighten and unit labour cost growth has firmed.
The MPC’s updated projections for inflation and activity are set out in the August Inflation Report and are broadly similar to its projections in May.
In the MPC’s central forecast, conditioned on the gently rising path of Bank Rate implied by current market yields, GDP is expected to grow by around 1¾% per year on average over the forecast period. Global demand grows above its estimated potential rate and financial conditions remain accommodative, although both are somewhat less supportive of UK activity over the forecast period. Net trade and business investment continue to support UK activity, while consumption grows in line with the subdued pace of real incomes.
Although modest by historical standards, the projected pace of GDP growth over the forecast is slightly faster than the diminished rate of supply growth, which averages around 1½% per year. The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.
CPI inflation was 2.4% in June, pushed above the 2% target by external cost pressures resulting from the effects of sterling’s past depreciation and higher energy prices. The contribution of external pressures is projected to ease over the forecast period while the contribution of domestic cost pressures is expected to rise. Taking these influences together, and conditioned on the gently rising path of Bank Rate implied by current market yields, CPI inflation remains slightly above 2% through most of the forecast period, reaching the target in the third year.
The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.
The Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting.
The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”
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Neil Patterson
12:15 PM, 2nd August 2018, About 6 years ago
The majority of money was put on this hike in the last week after a predicted increase in May never materialised, but I will still want to read the detailed reasons for this increase as I remain unconvinced it is because of any sustainable domestic led inflationary pressures.
In summary Landlords please Don't Panic
Mark Alexander - Founder of Property118
12:52 PM, 2nd August 2018, About 6 years ago
Sam Mitchell, CEO, online estate agents Housesimple.com, comments:
'Although this rate rise is unlikely to cause widespread panic, there will be lots of homeowners feeling a little less financially comfortable today.
"A generation of homeowners have never experienced a rate rise, and now they have had two in the space of a year.
"No-one thought that historically low interest rates would carry on forever, but plenty of homeowners would probably admit they haven't planned ahead for rate rises, unwisely assuming that rates wouldn't rise for years.
"Now they have, it's a shot across the bows. A small rise could actually be beneficial in the longer term if it makes people pause before committing to a mortgage that might over-stretch their finances.
"If you are thinking about taking out a mortgage, it's always important to factor in possible rate rises to see if you could still pay the mortgage if rates went up by say 1%.
"Also, for anyone on a fixed rate mortgage, although they won't feel the pain immediately, it's worth checking what your monthly payments might go up to at the end of the mortgage term.
"In particular, anyone on a two-year fixed rate deal that was taken out just before the rate rise last November, the term will expire in just over 12 months and it's inevitable they will be re-mortgaging onto a higher rate than they are on now.
"It's best to find out now what that could mean financially, rather than leaving it until the mortgage term is about to end."
Mark Alexander - Founder of Property118
12:53 PM, 2nd August 2018, About 6 years ago
Angus Stewart, Chief Executive of Property Master, the digital start up that uses algorithms to match the requirements of individual landlords against the entire buy-to-let mortgage market, said of today’s Bank of England Monetary Policy Committee decision to raise the base rate “A rise in base rate has been trailed for quite some time so today’s announcement will not come as a surprise to many. The economy seems to have recovered its bounce following bad weather earlier on this year and this better economic data has finally forced the hand of the Bank. “
Mr Stewart continued: “Our recent July Mortgage Tracker which follows rates and fees from 18 of the largest lenders in the buy-to-let market showed that the cost of popular buy-to-let fixed rates deals has continued to fall since the start of the year. Five-year fixed rate mortgages have been particularly competitively priced with the monthly cost of borrowing a typical amount of £150,000 falling between £11 and £24 compared to the cost if the loan had been taken out in January. Given today’s news of a base rate rise landlords who are looking to borrow to buy a new property or refinance their existing portfolio may need to move very fast indeed if they are going to benefit from some of the good deals we have seen.”
Mark Alexander - Founder of Property118
12:54 PM, 2nd August 2018, About 6 years ago
Responding to the Government’s announcement that interests rates will rise to 0.75%, Benson Hersch, CEO at the ASTL, said:
“Today’s announcement that interest rates are rising will as expected have a major impact on longer-term lenders, as they may feel compelled to raise rates. This will affect exit routes for short term loans, but unless there is an expectation of further increases in the medium term, I don’t expect rate rises to affect short term lenders.”
Mark Alexander - Founder of Property118
12:54 PM, 2nd August 2018, About 6 years ago
Speaking in response to the Bank of England’s decision to make a small increase of 0.25% to the Base Rate, James Davis, Founder and CEO at online letting agent, Upad.co.uk, comments:
“Given that the Base Rate was kept at 0.5% in May of this year, today’s announcement of an increase to 0.75% really shouldn’t surprise anyone. If anything, I believe landlords actually stand to benefit.
“Simply, Upad’s own data suggests that over 50% of landlords are on fixed rate mortgages which means they’ll experience no immediate impact and when they do come to refinance, the currently available mortgage products are likely to have been superseded by more competitive products anyway. By all accounts that means that many landlords stand to make lower repayments in the future.
“Moreover, for landlords looking to go onto a new product in the near future, this rate rise has been long anticipated, and lenders have already incorporated it into their current rates given that the 12-month Libor SWAP rates started increasing at the start of this year.
“However, this isn’t just about mortgage interest rates – it encompasses so much more of the housing market. On the one hand, there’s an on-going lack of affordable housing for purchase which maintains a level of buoyancy in the rental market. At the same time, this small rate increase could knock confidence in the housing market, meaning people chose to rent for longer. Either way, I believe landlords have nothing to fear and everything to enjoy!”
Neil Patterson
12:57 PM, 2nd August 2018, About 6 years ago
I have just watched the news conference and statement by Mark Carney and I have seen many in the past and I get the feeling he doesn't really believe his own decision.
He keeps saying how it is conditional on the Brexit negotiations and how the decision for the rate rise was based on assuming an orderly almost best case scenario leaving of the EU.
Jim
14:14 PM, 2nd August 2018, About 6 years ago
Reply to the comment left by Neil Patterson at 02/08/2018 - 12:57
... and what if we don't have an orderly best case scenario departure from the EU? Then what will happen to interest rates?
Neil Patterson
14:17 PM, 2nd August 2018, About 6 years ago
We are then most likely to require stimulus eg interest rate decreases and or further quantatative easing
Neil Patterson
14:21 PM, 2nd August 2018, About 6 years ago
This rate increase may also be giving room for a future decrease at a more opportune time.
Mick Roberts
14:30 PM, 2nd August 2018, About 6 years ago
Great reading again Neil.
I'm with u. Too much bad news economy, business's struggling, growth up down up down, hopefully see a reverse in a few months.