Understanding the BoE Base Rate Cuts:Understanding the BoE Base Rate Cuts:
Recently, the Bank of England (BoE) reduced its base rate twice: in August by 0.25 percentage points (from 5.25% to 5%) and again in November by another 0.25 points (to 4.75%). These moves were aimed at stimulating the economy and making borrowing more affordable. While base rate trackers—mortgages that adjust directly with the BoE base rate—have seen decreases, fixed mortgage rates have been rising. Here’s why, and what it means for you.
The Role of Swap Rates:
Fixed mortgage rates are influenced not by the base rate alone but by swap rates. These are the rates that banks use to lock in a fixed interest over a set period. When markets foresee higher inflation or economic shifts, swap rates increase, leading to higher fixed mortgage rates.
What’s Driving Inflation Expectations?
Labour’s Budget Policies have introduced measures that are perceived as inflationary:
1. Increased Public Spending (£70 Billion):
- Labour’s commitment to boosting public funding for sectors like healthcare and infrastructure fuels demand.
- Example: A surge in infrastructure projects can raise the cost of materials and skilled labour, pushing prices up across industries. For those of you keeping an eye on the property market, this could mean higher construction costs and longer timelines.
2. Rising National Living Wage (to £12.21/hour):
- This 6.7% increase benefits workers but raises costs for businesses.
- Example: A small local business owner, who you might pass on your way to the office, may need to increase prices to offset higher wages, and those costs get passed on to all of us as consumers.
3. Employer NI Contributions (+1.25%):
- NI is now payable from £5,000 (previously from £9,100), with the rate increased to 15%.
- Example: For employers, this means higher payroll costs. Imagine a small company facing these rising expenses—they may need to adjust pricing or hold off on expanding their teams, impacting the broader economic picture.
Impact on Swap Rates and Mortgage Rates:
Financial markets are responding to these inflation triggers by increasing swap rates, making it more expensive for lenders to offer fixed-rate mortgages. Even as the BoE lowers its base rate to support the economy, these rising swap rates mean fixed mortgage rates may stay high.
How This Affects You:
- Base Rate Trackers: Adjust directly with BoE rate changes, so they drop when the base rate decreases.
- SVR (Standard Variable Rate): This is what you pay after your fixed term ends. While it may follow the base rate, it’s ultimately set by your lender and can remain high even when the base rate drops.
At Viking Mortgages, we believe in empowering you with knowledge to make the best financial decisions for you and your family. We’re here to make sense of these market movements and guide you through your options. If you’re navigating mortgage choices during these uncertain times, don’t hesitate to reach out. We are just a phone call or message away, ready to support you with professional advice and a personal touch.
📲 Explore More: Call 07919 533850; or visit our website for a deeper dive: https://vikingmortgages.co.uk
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