Recession or Recovery: Bank of England Rate Predictions
Autumn has arrived, and with it comes the approaching update on interest rates by the Bank of England.
With less than two weeks left until September 21st, now is a great moment to provide an overview of the latest Buy-to-Let (BTL) Mortgage News and delve into the current market predictions.
Throughout this year, the interest rate has shown continuous growth, reaching a current rate of 5.25%.
In the present climate, the market anticipates two more rate hikes, possibly leading to rates of 5.75% or even 6%, before reaching its peak. Simultaneously, there’s a growing sentiment that a mild recession might be on the horizon. Nevertheless, these expectations could be readjusted downwards once again if new data regarding the job market indicates a further increase in unemployment.
The current market situation
Amidst growing concerns and rumours disseminating from governmental and financial institutions to the wider market, there are multiple indicators suggesting that the UK might be on the path toward a recession.
According to the Bank of England, the notable observation is that the flow of money into the country has halted its growth for the first time in 13 years. Additionally, S&P Global highlights that the latest purchasing managers’ index (PMI) signals one of the steepest declines in Britain’s business activity since the 2008 banking crisis.
Chris Williamson, the Chief Business Economist at S&P, underscores that businesses in the UK are grappling with more pronounced challenges than anticipated, adding another layer of concern to the unfolding narrative. He posits that if the government persists in elevating interest rates to rein in prices, it could inadvertently exacerbate the situation, potentially driving the nation into a recession.
How are the lenders reacting?
UK Banks or Building Societies are bound by ratios of savings to lending that they need to maintain. With the rise in rates, this brings positive news for Savers who have been contributing funds to ISAs and similar avenues. Lenders would have established lending targets for the current year, and if they haven’t met these goals yet, they might lower rates and adjust stress testing to enhance their attractiveness. Moreover, Lenders must find equilibrium between residential and BTL (Buy to Let) lending, given the regulatory ratios stipulated by the FCA.
A complex interplay of factors, including the Bank of England Base rate, inflation, talk of recession, lending appetite, savings balances, lending ratios, targets, workforce capacity, administrative levels, and more, collectively influence the rates.
Santander has raised its affordability criteria, making it tougher for Landlords. It’s believed that this move was driven by the aim to manage application volumes.
In contrast, Natwest has decreased its stress rate for assessing affordability within its Buy to Let Mortgage range.
Despite the recent uptick in SWAP Rates, Barclays, Halifax, Nationwide, Coventry, Natwest, and various others have slashed rates subsequent to the last Bank of England rate hike.
Certain lenders are introducing limited-time offers on small portions of funds. If these offers pique your interest, it’s essential to collaborate with a Specialist Adviser. You should ensure they have all the necessary details to submit your application when these favourable rates emerge, as they tend to be short-lived.
Conversely, other Lenders are retracting rates and adjusting them slightly higher due to the increased SWAP Rates and the anticipation of a Bank of England Base rate increase.
What is an overall market trend in case of mortgage rates?
As you’re aware, there’s a variety of mortgage options available, each with its own nuances. The impact of changes in the Bank of England (BoE) rate can vary depending on your specific circumstances. Fixed Rate mortgage deals, in particular, are more closely tied to SWAP rates rather than the BoE Base rate. SWAP rates are influenced by future rate expectations and are subject to adjustments as new data emerges.
The positive news is that, according to Moneyfacts, fixed rate mortgages have shown a slight decrease from their peak levels. The average two-year rate, for instance, has shifted from 6.85% to 6.74% since the start of August. Similarly, the average five-year fixed rate has gone down from 6.37% to 6.22% over the same period.
Let’s break this down: if you had opted for a two-year Interest Only fixed rate at the beginning of August, your monthly payment per £100,000 borrowed would have been £570.83. However, waiting until now would have saved you £9.17 per month.
We are again seeing Lenders jockeying for position before the next Bank of England announcement depending on their appetite to Lend.
We are talking to Landlords who are sitting on Variable Rates waiting for rates to decrease. Variable Rates tend to rise and fall when the Bank of England moves the base rate. Predictions are that when the Base Rate hits its peak it is likely to be some time before we see these rates fall.
What is our advice?
- Build a relationship with a Mortgage Broker that Specialises in BTL and working with Landlords.
- Review your whole portfolio with them so that they can help you to come up with a plan to ride this through.
- If you are remortgaging be open to fixing in a rate up to 6 months before your existing product comes to an end as you can change it if lower rates become available.
- Be wary of low rates that hit the Headlines often these come with High Fees or High Stress Tests which means that they will not be right for you.
A Specialist Mortgage Broker will give you advice and a recommendation based on your current situation and financial goals.