This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Category: base rate
Since the May decision to hold the Base Rate at 5.25%, two Bank of England Monetary Policy Committee (MPC) members have issued strong messages of caution, against expecting a drop at the June review.
Jorden Abbs, chief executive of specialist mortgage broker Commercial Trust, gives his view on the evolving implications for the landlord mortgage market.
MPC chief economist Huw Pill and fellow MPC member Jonathan Haskel have each spoken at separate public events after the vote and given messages that a decrease at the next vote is unlikely.
Even the Governor of the Bank of England himself, Andrew Bailey, whilst sharing a positive view of inflation – a key measure driving decisions on the Base Rate – said a cut was "not a fait accompli, it's not a done deal".
Pill and Haskel’s view on the Base Rate
Huw Pill’s view is that, whilst inflation may come down to its target 2 per cent in the next few months, it may not hold at that level due as a result of a strengthening in the economy. Pill is looking for consistency in inflation, before the Base Rate can drop:
We still have a reasonable way to go before I am convinced that the persistent momentum in underlying inflation has stabilised at rates consistent with achievement of the 2% inflation target on a sustainable basis.
And added:
[It] is necessary to squeeze the persistent component [of inflation] out of the system.
Mr Pill’s views are not being taken lightly and had an impact on the stock market shortly after he shared them, taking what had been had been a record high for the FTSE 100 of 8,076 points back down to 8,044 at the close of the day.
Ahead of the Base Rate vote, Jonathan Haskel had spoken at a seminar at City University of London’s Bayes Business School, on Tuesday 7th May. He was keen to emphasise that the economic recovery the UK is experiencing could push back a Base Rate drop.
There is a wide expectation that GDP figures for January to March, to be announced in June, will show the UK is no longer in recession.
Of all the voices amongst the MPC committee, Haskel has some of the firmest views on what it will take to bring about a drop in the Base Rate. He has said that Britain’s labour market needs to be weaker in order to bring about a sustained inflation rate of 2%.
What is my recommendation for landlord property investors?
The Base Rate is a strong contributing factor on the direction of travel for the money markets and mortgage interest rates.
Lenders will be keenly aware of the Bank’s position, and whilst doing good levels of business is vital, they must caution against dropping their rates too soon and risking financial dents to their income.
With the caution expressed by MPC members, it feels unlikely mortgage rates will come down in the short term.
If landlords are approaching renewal dates, the strategic approach I always recommend to our clients, is to lock in the most competitive deal available three to six month in advance of mortgage deal expiry dates. We can then monitor the market until the date approaches. Should rates come down in the interim, we can secure a fresh deal, but if they go up further, it is very possible this approach could be a money saver.
