This week the UK’s inflation rate fell to its lowest for more than three years to 1.3%. The bank of England’s target is to keep inflation below 2%. The UK economy has been stagnating due to political upheaval as there was an 0.3% contraction in November 19. The assumption has been that this was a temporary period and as political certainty gains ground there will be a recovery as businesses and consumers regain confidence. The Bank of England is expected to cut the base rate to stimulate the economy when it meets later this month by speculators. However, they may decide to wait and see how the economy performs before taking action.
The question often asked is what would happen to mortgage rates if the base rate is cut? For mortgages the relationship between the bank rate and mortgage rates is complicated as house price movements and competition factors are taken into account so borrowers should not expect a better rate if the base rate falls. The competition has been fierce in the mortgage market and as the rates are near record lows this raises the question do they have room to fall any further. Since the general election result house prices have risen by £4,000 in December according to Halifax. The average house price now stands at £238,963 which is an increase of £9000 in 2019.
As the first phase of the UK’s withdrawal from the EU commences on 31st January this year will hopefully have more clarity. There could still be a few bumps in the road along the way during the negotiation phase. If a rate cut does happen and lenders pass this on it will be welcome by many who are trying to get on the property market or looking to re-mortgage.