The Bank of England has raised interest rates by 0.25 percentage points to 5.25% at its August meeting. This is the 14th consecutive increase and takes base rates to the highest levels since April 2008. After data showed that inflation fell to 7.9% in June, down from 8.7% in May, there were some hopes that interest rates would at least start to plateau but that proved to be wishful thinking. Out of the nine Monetary Policy Committee members, six voted to increase it by 0.25 percentage points while two opted for a more aggressive 0.5% increase and one wanted to maintain the base rate at 5%.
The bigger picture
It isn’t just the Bank of England who is battling inflation. In America, the Federal Reserve is facing a similar scenario and on Wednesday 26th July they once again raised rates for the 11th consecutive time to a range of 5.25% – 5.50% and the highest level in 22 years.
While these two institutions on both sides of the Atlantic will be paying close attention to data, it seems fairly likely that we will see further increases this year, particularly in the UK, with the Bank of England stating that while inflation is falling, it is still too high. They do however expect it to fall “markedly further” this year and to meet their 2% target by early 2025. In fact, the Bank’s governor, Andrew Bailey, told a press conference that he predicts inflation will fall to 7% later this month and then hit 5% in October’s data.
This latest news comes days after Nationwide’s report that house prices fell 3.8% in year to July, the biggest annual drop in 14 years. It is worth noting that month on month this translates to only a 0.2% fall and is only modestly lower than the 3.5% year on year drop recorded in June. While affordability clearly remains an issue, Robert Gardner, Nationwide’s Chief Economist, also declared that “a relatively soft landing is still achievable” and pointed to unemployment expected to remain low as well as that “the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs.” He went on to say: “While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”
Opportunity for landlords and investors
For those who have access to liquidity, the current market presents multiple opportunities. While many prospective buyers – particularly homeowners – are wary of overburdening themselves, investors and professional landlords who have access to liquidity could take advantage of the current sluggish property market to purchase assets at a reduced rate. If any of your clients are wanting to unlock their property’s potential, a refurb – even a light one – could help them achieve this.
Bridging the gap
However, if the latest base rate rise is deterring clients from either purchasing a property or unlocking equity by remortgaging then it could be worth suggesting a bridging loan. Not only could this provide them with a short-term financial fix but it also gives them space to wait for some much-needed stability. With terms available between one and 24 months and a lack of exit fees or early repayment charges, this gives them some breathing space until they find a more favourable rate while avoiding any financial penalties if they exit before the end of their term. We also have a range of options for repaying interest, including serviced (meaning no monthly payments for the duration of their term), retained, or part and part.
If you would like to find out more about our regulated or unregulated bridging loans we can be contacted via email, online or on 0203 051 2331.