Person holding a pen, sitting at a desk with a laptop, calculator, mug, mobile phone, and papers and a notepad on it

Category: base rate

The Bank of England may have to increase base rate to 7 per cent, says JP Morgan economist Allan Monks. We look at the impact on landlords and property investors and how this will influence their investment strategy.

According to analysis done by JP Morgan Chase economist Allan Monks, ‘under some scenarios’ the Bank of England (BoE) may be put in a position where they increase base rate to 7 per cent in order to curb stubborn inflation.

These comments come after The Bank of England raised the base rate a further half percent to 5 per cent, which marked the 13th successive increase, all of which have been made to try and bring inflation under control.

In such a tumultuous environment, mortgage lenders have been withdrawing products and raising rates frequently to keep up with the economic landscape.

At the very least, Monks expects the BoE base rate to peak at 5.75 per cent, by November this year.

Inflation hit a 41-year high of 11.1 percent in October 2022 and is currently at 8.7 per cent, and as a result The Bank of England is wrestling to get this down, with a target of 2 per cent.

Currently, the United Kingdom is the only G7 nation where inflation is rising – Canada has the lowest inflation at 3.4 percent, a 2.5 point drop since the beginning of the year.

Former Governor of the Bank of England, Charlie Bean, has been quoted at a House of Commons treasury committee, telling members of parliament “[The Bank of England] were certainly too slow to wake up to the need to be withdrawing stimulus”. He was commenting on how, in his opinion, the nation’s central bank were too slow to curb inflation, and this may be the reason why we are experiencing a particularly stubborn inflation rate.

If The Bank of England do end up raising rates to 7 percent, Monks says, this will undoubtedly affect confidence in business, raising the unemployment rate.

Mortgage holders will also be hit with further increases in monthly outgoings, with upticks of insolvency expected.

When questioned how the Bank of England will meet the 2 per cent inflation rate target, Prime Minister Rishi Sunak says they need to ‘just keep throwing everything at it’.

What should landlords do?

Sunak started his term in office with the aim of halving inflation, to do this he initially anticipated a peak in the base rate of 4.5 per cent.

However, at present, with inflation at 8.7 per cent, and the base rate now at 5 per cent, past Sunak’s previous expected ceiling of 4.5 per cent, general professional consensus agrees that base rate will be increased further.

When purchasing or re-mortgaging comes around, landlords and property investors have the choice of a fixed rate or a tracker rate.

Tracker rate mortgages typically follow the base rate. This means if it keeps going up, mortgage interest rates that follow it will rise too.

At Commercial Trust we have had some clients tell us they believe rates could come down, but everything we can see from the state of the economy and mortgage interest rates as a whole imply this just won’t be the case for some considerable time.

A fixed rate mortgage will shield you from further mortgage interest rate hikes for the period the rate is fixed, and may carry you through further increases, until rates do start to come down again. Given the mortgage industry only sees increases in rates for the foreseeable, it makes sense to secure a deal as soon as possible, since rates are frequently being withdrawn and put further up.

Commercial Trust is a specialist buy to let and commercial broker, and is in constant contact with a wide range of relevant lenders, and so we can make sure we find you the most competitive deal from those currently available from our lender range.