Mortgage

Bank of England Reductions

The Bank of England (BOE) has reduced rates by 0.25% for the fourth time since the all time low of 0.1% in January 2022 to 4.25%. Now inflation has settled around the target of 2.00%.

Rates were previously held at 4.5%.

With inflation around 2.5% it spurred the Bank of England to reduce rates for the fourth time after 15 previous consecutive rate rises (5-4). Two members preferred to reduce Bank Rate by 0.5 percentage points, to 4%. Two members preferred to maintain Bank Rate at 4.5%.

The Bank of England says it expects the UK economy to grow by 0.75% in 2025, down from a previous forecast of 1.5%.

Today’s base rate cut is welcome news for people looking to sell and buy homes in the remainder of 2025. It will provide a boost to market sentiment and filter slowly into lower mortgage rates as the cost of fixed-rate mortgages already reflects future cuts in the base rate. This, alongside reforms to mortgage regulations announced recently, will help boost buying power. This is important at a time when there is a large number of homes for sale across the UK – the average agent has 34 homes for sale.? Improved buyer confidence will support sales and help more people realise their moving ambitions in the year ahead.

Inflation is still set spike to 3.7% later in 2025, however this is expected to settle back around 2% shortly after.

Future uncertainty with Trump’s tariffs has contributed to the bank of england reducing interest rates. this is just ahead of the UK-US trade deal announcement, citing weaker growth and easing inflation due to higher tariffs….

Mortgages

Today’s reduction could see the return of sub – 4% mortgages being offered by lenders.

Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently reduced interest the rate by 0.25 percentage points to 2.40 per cent and US Federal Reserve held rates at 4.5% with recently elected president Donald Trump.

For the 629,000 homeowners on tracker deals that move in line with the base rate, there will typically be a ?29 fall in monthly repayments, according to figures from banking trade body UK Finance.

The 693,000 people on the standard variable rate will need to wait for the response of their lender.

However, if their provider matches the base rate fall, typically they will pay ?17 less a month.

If you have a fixed mortgage deal, the rate you pay monthly in interest is fixed until the deal expires, so there’ll be no immediate change.

Some lenders have already factored to futher bank of england rate reductions by the end of 2025.

Further rate reduction in June?

Financial markets have pencilled in another reduction in June, provided inflation continues to settle around 2.00%.

What are your thoughts on the Bank of England rate reductions?

Bank of England Hike

The Bank of England decision (8-1) to increase interest rates 0.5% from 1.25% to 1.75% has come as no shock, but the illusion it has been introduced to curb inflation is debatable…

It seems the invasion of Ukraine by Russia is being blamed for spiralling fuel costs and energy prices. Using the government calculated inflation figure of just above 11%. The true inflation figure can be calculated simply by looking at the increased cost of consumer outgoings…

• Fuel up 42% (?2.00 per litre)
• Energy costs up 54% (average ?300 per month)
• Food on average up 22%

The Bank of England has raised interest rates for a sixth successive time, with the recent hike being the highest in 27 years!

Industry experts estimate that around 40% of mortgages will go up over the next year, so more people will be forced to make higher monthly payments.

According to the BoE, a homeowner with a ?250,000 tracker mortgage on a 25-year term will be paying an extra ?62 a month after Thursday’s announcement.

UK inflation hit 9.4% in June, and the Bank of England now expects prices to top 13% before the end of the year, which is well above its 2% target, this doom and gloom is expected to remain elevated in 2023.

As the central bank battles a slowing economy, the ever-tightening cost of living crisis and rampant inflation, here’s how that affects your mortgages and house prices.

Mortgages

Analysts say the Bank’s move to hike rates by 50bps will “pile more misery” on nearly 2 million people with variable rate mortgages as they battle the rising cost of living.

Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently raised its main?interest rate by 0.5 percentage points?and US Federal Reserve has rapidly raised rates to a range of 2.25% to 2.5%.

Most economists support such efforts to bring down inflation, but there are growing calls for restraint as economies head for recession and unemployment levels rise, depressing business and consumer spending without the need for further interest rate rises.

Debt charities urged the government to provide further subsidies for low-income households after an increasing number had turned to high-cost credit to keep afloat. The increase in borrowing costs will push up mortgage costs will naturally push up rental costs where the property is owned by landlords.

In addition to raising interest, the MPC also signalled that it would tighten policy accelerating the unwinding the money-creation process known as quantitative easing.

Between 2009 and the start of the pandemic in 2020 the Bank bought ?895bn of government and corporate bonds in an attempt to support the economy but is now planning to sell bonds at a rate of ?10bn a quarter over the next year.

Further rate rise in September?

Financial markets have pencilled in another 25bp (0.25%) hike in September, with some predicting a pause after that.

What are your thoughts on the continual Bank of England rate hikes?

Lifetime mortgage or retirement interest-only?

A recent mortgage option for older homeowners has become available, retirement interest only (RIO). Effectively the borrower pays monthly interest until they sell their home, go into care or die. At which point the property is sold to repay the loan.

Lifetime mortgage

Lifetime mortgages are also known as equity release mortgages. They are secured against your home allowing you to release excess equity. They are only available to over 55s and in this case the loan is paid off when the last living person in the property sell their home, goes into care or dies.

Retirement interest-only mortgage

Retirement interest-only mortgages are like basic interest only mortgages with one major difference. There’s is no set end date as the loan is redeemed when the property owner dies and there’s no age limit!

Summary

The Financial Conduct Authority (FCA) seems to have cut a lot of red tape which is encouraging more advisers to offer such products to their clients. With that said RIO loans are sold by only a handful of lenders. Lifetime mortgages tend to be offered by specialist equity release brokers.

Equity release can be a better option for those with a less secure income or do not wish to commit to regular mortgage payments for the rest of your life.

What do you think of the additional borrowing option? Have you experienced either of these products?