Bank of England raises interest rates to 4.25%
The Bank of England raised interest rates by 0.25 percentage points from 4 to 4.25 per cent at its March meeting, the 11th consecutive increase. Seven members of the nine-strong Monetary Policy Committee (MPC) voted for a 25 basis-point rise, with two voting to maintain base rate at 4 per cent.
Following the unwelcome and surprising news that consumer price inflation (CPI) rose to 10.4 per cent in February, after falling from 10.5 per cent in December to 10.1 per cent in January, it was inevitable that interest rates would have to follow suit in order to try to reduce inflation to meet the Bank’s 2 per cent target.
While Rishi Sunak’s aim to halve inflation by the end of the year might now look slightly optimistic, many believe that the right course of action is being adopted in the background. The MPC seemed to confirm this by noting that while inflation increased unexpectedly, it is still likely that it will fall sharply over the rest of this year.
There are concerns that another rate rise could result in further issues for the banks, given the recent volatility since the failure of Silicon Valley Bank and UBS’ purchase of Credit Suisse. However, we hope there is enough stability and liquidity to counter that risk and that this rise is the penultimate, if not the last, before the Bank can start reducing base rate.
house price growth continues to slow
Higher interest rates inevitably have an impact on the housing market, with the Land Registry releasing figures earlier this week showing that annual house price growth continued to slow in January. It is not surprising in a rising inflationary and interest rate environment that buyers would feel less positive about their purchasing power and be less prepared to pay over the odds for their new home. This slowdown in price growth is likely to continue over coming months until interest rates stabilise. However, not all properties are equal, with the Land Registry data showing that houses saw the biggest increases in values compared with flats, further cementing the trend for buyers to prioritise space.
While transactions are a more useful measure of housing market health than property prices, the former are also slowing according to HMRC’s data, which was also released this week. Seasonally-adjusted figures show that transactions dipped by 18 per cent compared with February last year and were 4 per cent lower than January 2023. This downturn can also be linked to higher mortgage rates as buyers and sellers decided to pause over the ever-changing mortgage environment. Once again, stability in rates should lead to an uptick in sales.
Putting it all into perspective, with transactions at a similar number to pre-pandemic levels, this data highlights how the housing market spiked through and after Covid, with eager buyers looking to move and an extremely low interest rate environment supporting those decisions. Looking forward, the market may benefit from further stimulation, perhaps in the form of another stamp duty reduction – banks remain keen to lend and many buyers still wish to move so any impetus in the form of reduced tax may persuade them to take the plunge.
how MT Finance can help
Here at MT Finance we are here to help. Our bridging loans are available for up to two years and there is the option of retaining interest retained for the full period, meaning no monthly payments for 24 months. This can help landlords and investors with budgeting in a rising interest rate environment, giving them maximum flexibility to see through the current environment before moving onto a longer-term product once the market has settled down.
Our lack of early repayment charges means there are no financial penalties if exit needs to be made early. To get in touch with one of the team, contact us on 0203 051 2331, online or via enquiries@mt-finance.com.