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Ben Allen, Managing Director of The Right Mortgage & Protection Network:

“There were always going to be fireworks today, but with today's decision to increase Bank Base Rate by 25 basis points to 4%, the MPC has decided to provide some of its own. The likelihood of this decision has grown significantly in recent weeks, and I think many of us had become increasingly resigned to an increase given the continued pressure on inflation and the signals from Committee members they were prepared to act. With inflation expected to rise further, potentially remaining elevated until next spring, the MPC has evidently decided the risk of doing too little outweighs the risk of acting prematurely. I can understand that position, even if there are questions about how effective higher UK interest rates can be when so much of the inflationary pressure is being driven by the conflict in the Middle East, higher energy and shipping costs, and other global factors. The Bank is effectively using the main lever it has available to respond to pressures largely outside its control, and while increasing BBR cannot directly bring down oil prices or resolve supply problems, it will add to mortgage costs for borrowers on tracker rates and potentially those on discounted and standard variable rates.

“For the wider mortgage market, today's increase arguably changes relatively little because lenders and borrowers have already been living with higher swap rates and funding costs for months. However, there have been some encouraging developments recently, with lenders reducing mortgage rates this week and October appearing to have been a positive month for both applications and completions. With a substantial number of existing mortgage products approaching maturity, there is potential for a strong finish to the year despite the wider uncertainty. Advisers have certainly had to work hard through repeated lender repricing and tight withdrawal deadlines, and those lenders who continue to give meaningful notice of changes deserve credit. The key question now is whether markets believe today's increase is sufficient or whether further rises are likely because that will have a greater bearing on fixed mortgage pricing than the decision itself. Last week's Budget also feels like a missed opportunity to provide more meaningful support for housing activity, particularly through stamp duty reform, although the Your First Home measures are welcome. Nevertheless, there is still business to be done and reasons for cautious optimism over the remainder of the year.”