November 5th, 2020
The Base Rate has been maintained today
Following the announcement of the second national lockdown and as the lockdown kicks in today, the Bank of England (BoE) announced that the base rate would maintain its position at 0.1%.
At its meeting ending on 4 November 2020, the Monetary Policy Committee voted unanimously to maintain the Bank Rate.
This comes further to the emergency response to the Coronavirus pandemic earlier this year when the Bank of England slashed the base rate from 0.75% to 0.25%, and then once further to 0.1% in March 2020, where it remains at a historic low. This was a measure intended to reduce the risk of inflation increasing and the maintenance at this rate continues to support this measure.
The changes to the bank rate in 2020 from the Bank of England
Reducing the risk of inflation?
The Bank of England’s Monetary Policy Committee (MPC) meet to vote on a number of monetary policies, including the base rate, to discuss how to meet the 2% inflation target set by the government.
In doing so they also aim to help sustain growth in the UK economy and employment. In yesterday’s meeting the committee voted unanimously to maintain the bank rate at 0.1%. More information about what was discussed in the meeting can be found on the Bank of England website.
Yael Selfin, chief economist at KPMG UK, indicated that low inflation (well below the Bank of England’s target of 2.0%) will “Serve to protect households’ spending power at times when many are feeling under pressure”.
With the second lockdown now in action, housing secretary Robert Jenrick outlined, in a Twitter Q&A, some concerns that the lockdown would have on the mortgage market and made it clear that the market would remain open – stating home movers should continue as planned; estate agents and removal firms would continue operating and tradespeople will still be allowed to enter homes if following social distancing guidelines. This, in addition to the bank rate, ultimately mean that the mortgage market can maintain it’s healthy stimulated position as we move forward.
It is important to note that a small amount of inflation can help to boost economic growth, by encouraging individuals to buy products and thus making it easier for businesses to increase employee wages.
What does that mean if you are a contractor or self-employed and looking to secure mortgage finance?
Is now a good time to get a mortgage or a remortgage then?
Though house prices are now at a five year high according to Nationwide Building Society there are many factors that support considering a review of your current mortgage terms.
A low base rate means lenders can continue to offer low-interest rates for borrowers. When accounting for this and the stamp duty holiday, now could also be a great time to consider remortgage, home buying or property investment.
What does the rate mean for your mortgage plans?
For home buyers, the Bank of England base rate affects all loan and mortgage interest rates in the UK. By maintaining the current BoE base rate at 0.1% borrowing is cheaper, but it also means that the returns on savings will be less as well.
This may be the perfect time to review your circumstances, with the rate remaining at this historic low, remortgage could potentially save you money by reducing your monthly repayments.
In addition to this, with house prices still on the rise, your house may be worth more now than when you originally took out your current mortgage deal, meaning you could potentially take advantage of being in a more favourable loan to value (LTV) bracket to remortgage or raise additional funds at a lower interest rate.
Between the significantly low rates and the stamp duty holiday, now could be a great time to move however, these factors won’t last forever. With the MPC meeting every month to review the base rate and the stamp duty holiday due to end in March, many people are rushing to take advantage of the market now.
Accounting for the second lockdown shouldn’t impact your plans to move home – according to Robert Jenrick (the housing secretary) you will still be able to move house and continue with your plans as expected – unlike the first lockdown with removal firms and tradespeople still in action you shouldn’t expect delays in light of the lockdown.
Simon Butler – Head of Mortgages for CMME said: “The lack of a base rate increase, or decrease for that matter, is not a considerable surprise. The housing market has been buoyant over the past couple of months, due to a mix of pent up demand after the previous lockdown was lifted and the stamp duty holiday introduced by the Chancellor.”
“Interest rates have generally remained fairly steady in recent months for lower loan to value products, although lenders did marginally increase higher LTV’s products in September and October to stem the tide of applications. These have begun to decrease in recent weeks, so with the news that the housing market can remain open there is ample reason to continue hunting for a new property or interest rate.”
The MPC will meet again to decide the bank rate on 17th December 2020.
CMME can give advice and support to self-employed people and offer bespoke advice on your individual situation. If you would like to know more, contact us today.