The Bank of England recently put the base rate for borrowing up to 3%, so I hear a lot of clients asking me what that means for them.
The base rate is the rate at which banks borrow money from the Bank of England. They will lend that money out with a margin, for a profit, on credit cards, loans and mortgages.
As a rule of thumb, the percentage you have to pay back of any borrowing that you have will now increase as banks charge more to maintain their profit margins.
The problems with this currently, is, we're in a high inflation climate (goods and services cost more while wages remain the same) inflation, the yearly measure of a price of a basket of goods, has increased to 10%, meaning our outgoings have gone up, making us all poorer.
The Bank of England, put the base rate up to try to encourage people to spend less and bring inflation back down to their 2% target, (We won't talk about how they missed this target in the first place).
This increase essentially a few things;
1)
Mortgage payments will cost more to service each month for homeowners.
2)
Borrowers who took out remortgages as prices increased over two years will be stuck with high mortgage payments in the future, just as property prices fall, meaning they could end up in negative equity (your mortgage costs more than your property value). This has already started happening is some places across the UK.
3)
There are less buyers, as the banks revise their lending criteria, and lend less to first time buyers, as the lenders as for bigger deposits on the exact same property, or they build these he's costs into their affordability calculator, making it harder to pass.
All of these outcomes are not good for the economy, and will lead to house prices falling, as I stated would happen, when I wrote an article back in 2017. As prices fall it means people will lose their jobs as companies cut back on spending.
The Bank of England have signalled a two year recession at minimum is on the cards, they should have seen it coming earlier.
Thanks for reading, if you need mortgage advice, get in touch.
Anthony
Always Wright Mortgages Limited
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