The rising costs of mortgages
The Bank of England (BoE) has implemented a 0.25% increase in interest rates to 5.25% during today’s monetary policy committee (MPC) meeting. This move will mark the 14th consecutive interest rate hike and will set a new record high since the global financial crisis of 2007/08. The market and analysts widely anticipate this step, which could trigger another round of mortgage rate hikes.
While there are positive signs for the UK’s economic growth, with the International Monetary Fund (IMF) revising its outlook upward for this year, caution remains due to the persistent threat of higher inflation. The IMF predicts a rise in UK GDP by 0.4% in 2023, an improvement from its previous forecast of -0.3%, and a further increase of 1% in 2024, suggesting the economy will avoid recession.
However, despite the brighter economic outlook, the BoE has faced criticism for its inflation predictions in the past. This may lead the bank to continue its strategy of curbing spending as a measure to maintain control over inflation and stabilise the economy.
As the global financial landscape remains uncertain, central banks worldwide are treading cautiously, carefully balancing interest rate decisions to sustain economic growth while grappling with the challenge of inflation. These rate changes could significantly affect consumers, businesses, and investors, influencing borrowing costs, investment decisions, and overall economic activity in the coming months.
Presently, numerous borrowers are on tracker and SVR mortgages, and it is anticipated that around 4.4 million homeowners will transition from fixed deals between the initiation of the Bank’s rate increase cycle and the conclusion of 2024.
Persistence in Pursuit: Seeing the job through
Governor Andrew Bailey emphasised the importance of staying committed to their course of action, stating that it is “crucial we see the job through.” Deputy Governor Dave Ramsden echoed this sentiment, expressing concern about persistently high inflation despite recent declines, indicating that longer-term pressures haven’t eased significantly.
The job market in Britain paints a mixed picture. While wage growth excluding bonuses remained strong at an annual rate of 7.3% in the three months to May, reaching the highest level since records began in 2001, unemployment unexpectedly rose to a 16-month high of 4%, and job vacancies advertised by employers decreased.
Swati Dhingra might be the sole member of the Monetary Policy Committee who votes for a pause in rate hikes, citing weak producer price inflation, which plummeted to 0.1% in June, the lowest level since December 2020 and a stark decline from nearly 20% last July.
Recently, Silvana Tenreyro, who also advocated keeping rates unchanged this year, has been replaced by Megan Greene, former chief economist at Kroll Institute. Greene cautions against assuming that inflation will automatically return to target levels.
Critics of the Bank of England argue that its approach risks triggering an unnecessary economic downturn and that raising interest rates is ineffective in addressing inflation stemming from higher food and energy prices. They point out that banks are the primary beneficiaries of higher rates, with their profits flourishing as a result.
Anticipating higher market interest rate expectations, the BoE will likely revise its growth and inflation forecasts, a crucial component of its economic projections.
The International Monetary Fund recently projected a sluggish growth rate of 0.4% for Britain’s economy this year, making it the second slowest among the Group of Seven advanced economies, trailing behind Germany.
Typically, analysts closely examine how much the BoE’s forecast for inflation deviates from its 2% target for two years ahead to indicate its alignment with market rate bets.
Embracing a glass-half-full Outlook in the Financial World
Despite fluctuations in interest rates, the financial world continues to thrive, and the property industry remains in motion. The ever-evolving cycle persists, with sellers and buyers playing their essential roles. It is the natural order of things, and we cannot envision a world without these fundamental elements. You can read more on these topic matters in our Interest Rate | Economy article category.
While some may argue that it might not be the most opportune time to purchase a property, the grand scheme of things reminds us that the philosophy of “where needs must” prevails. The property market adapts in uncertain times, and individuals find ways to fulfil their housing needs.
Moreover, it is essential to recognise that the property market operates within a dynamic landscape. Economic conditions, interest rates, and market sentiments all influence the property sector. Embracing a glass-half-full outlook means acknowledging that these factors are part of the ever-changing tapestry of the financial world. 
As we navigate through the highs and lows of the property industry, opportunities may arise for both buyers and sellers. Economic fluctuations and interest rate changes can create windows of opportunity for astute investors to secure attractive deals. For those looking to purchase a property, the timing is right to find a place that fits their needs and budget.
Amidst the uncertainties, the property market remains resilient, adapting to various challenges and circumstances. The vision of a glass half full allows us to see beyond the immediate circumstances and recognise the enduring nature of the property market.
So, while interest rates may not always align with our ideal scenarios, the spirit of resilience and adaptability keeps the financial world moving forward. Like any other, the property industry will continue to present opportunities and possibilities, making it a dynamic landscape to navigate. We can remain optimistic and open to future prospects by embracing the glass-half-full perspective.
