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What The New Base Rate Rise Will Mean For Mortgages

Another month, another base rate rise; on the face of it, there is nothing at all novel about the latest decision by the Bank of England’s Monetary policy Committee (MPC) as it continues the fight against persistently high inflation.

The MPC announced that it had voted 7-2 to raise the base rate by 0.25 per cent to 4.5 per cent, with two members voting to hold the rate at 4.25 per cent.

The main rationale for the decision was clear: The minutes stated that at 10.2 per cent in the first quarter of this year, the consumer prices index (CPI) rate of inflation was “higher than expected at the time of the February and March MPC meetings.”

Although CPI is expected to “fall sharply” in April as inflationary factors such as a surge in gas prices due to the Ukraine war drop out of the equation, the key issue is how to get the CPI rate down to the target figure of two per cent.

If you are seeking a first time buyer mortgage in Liverpool, it is important to discuss with an expert what the best options are for you. Many commentators have expected rates to go as high as 4.5 per cent, but a fixed rate mortgage will protect you against them going any higher.

It may be that you then benefit when this deal expires as by then inflation may be under control and rates come down.

On the other hand, a variable rate deal may be a better option than a year ago, as the expectation that inflation will fall could at least cut the chances of many more rate hikes and increase the chances of a reduction within the next 12 months.

It is also important to consider issues like deposits, with 100 per cent mortgages returning to the market following a recent announcement by Skipton Building Society. This can help those struggling to save deposits but some fear this could lead to the kind of loose lending that caused the 2008-09 crash.

“100% mortgages have to be done in well-administered and well risk-assessed circumstances”, Bank of England governor Andrew Bailey told the BBC.

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