Bank of England Base rate up to 0.75%

by Neil Patterson

12:08 PM, 2nd August 2018
About 10 months ago

Bank of England Base rate up to 0.75%

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Bank of England Base rate up to 0.75%

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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The 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.”



Mark Alexander

17:00 PM, 2nd August 2018
About 10 months ago

MakeUrMove managing director, Alexandra Morris, commented:

“Despite there being plenty of good landlords out there who want to keep the impact on their tenants to a minimum, the reality of the situation is that now the Bank of England has raised the base rate, many landlords will find that the increase in their mortgage repayments makes their current financial situation unaffordable, and will be forced to consider rent increases as a result.

“40 percent of the landlords we surveyed earlier this year indicated that the new laws, regulations and tax changes being introduced meant they were already considering increasing rents and 29 percent said a rise in the base rate was their biggest worry in 2018. Clearly, this rate rise is now an added pressure which could be the tipping point that means a large number of landlords decide they have to pass on their additional costs to tenants in order for it to remain viable for them to let their properties.

“The Government are currently sleepwalking into an ever deepening housing crisis and the Bank of England base rate rises are adding to the burden felt by many landlords. This is particularly concerning when private landlords provide a vital role as the backbone of the UK housing market.”


10:18 AM, 4th August 2018
About 10 months ago

"many landlords will find that the increase in their mortgage repayments makes their current financial situation unaffordable, and will be forced to consider rent increases as a result."

Many might be confused at how such a small rate rise could make the situation unaffordable, but if s24 is already hurting, this rate rise will make it even worse.
With Brexit around the corner and s24 on its way in, this could really damage the whole housing market. Rents will be forced up as more landlords exit, meaning more people chasing fewer tenancies at higher cost.

Howard Reuben CeMap CeRER

16:15 PM, 5th August 2018
About 10 months ago

Reply to the comment left by H B at 04/08/2018 - 10:18
And hopefully many will also take independent mortgage advice from specialist BTL brokers who help borrowers to rebalance their portfolio, reduce overall costs, secure best value mid to long term rates and provide an ongoing review service which enables borrower / investor to implement and retain control over their asset/liability situation.

Now .... where could we find such a Broker? 🙂

ps. If my subtle penny dropping didn't work, you can find a Team of Brokers via my profile link above 😉

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