- Finance experts expect the base rate to reach 4% and see no decrease much before the end of 2024
- Variable mortgage rates will continue to rise accordingly through 2023
- Potential homebuyers may be able to lock in a better house price in the next two years
The current turmoil could have been avoided if the bank had raised rates much earlier, according to CMC Markets analyst Michael Hewson
The Bank of England (BoE) announced on November 3rd that it is further raising the base interest rate from 2.25% to 3%. This means more bad news for mortgage borrowers. Financial experts have described the BoE's decision to increase rates as "operation protect the housing market".
With potential homebuyers delaying taking out a mortgage at the current record-high rates and lenders pulling many of their mortgage products off the market, the housing market does not appear to be recovering anytime soon. BoE reports that more buy-to-let homeowners are selling their properties, while house prices are slowing down due to the sharp decrease in demand.
Finance experts at CMC Markets predict that the base rate could reach 4% and see no decrease much before the end of 2024. Variable mortgage rates will likely continue to rise accordingly throughout 2023. The lower demand in the housing market and the likely increase in supply in the near- to medium-term may benefit financially stable buyers who may be able to lock in a lower house price in the next two years.
Michael Hewson, Chief Market Analyst at CMC Markets, comments: "The pound had been trading in the middle of the pack against the US dollar, until the Bank of England announced it was raising rates by 75bps, although there was dissent on the size of the move, and then spent the next hour undermining that hawkish move in what can only be described as "operation protect the housing market". [GU1]
On the factors determining the fluctuations of the base interest rate, Hewson explains: "Recent sterling weakness certainly hasn't helped when it comes to the inflation narrative for the Bank of England, along with the recent political turmoil, which has served to push up import costs, but has also increased borrowing costs, in turn prompting a rise in mortgage rates. If the bank hadn't kept rates low for so long and even flirted with the idea of negative rates as recently as two years ago, they wouldn't be in the unholy mess they are in now."
While the BoE suggests that it would likely continue to raise the bank rate to achieve a "sustainable return of inflation to target" (i.e. 2%), it admitted that "considerable uncertainties" persist, driving inflationary pressures, in which case the Bank "will respond forcefully, as necessary".
The BoE forecasts inflation to start falling around mid-2023, reaching 5.2% by the end of next year from its current peak of almost 11%. The UK economy will remain in recession until 2024 H1, when GDP will start recovering.
The next meeting of the Bank of England's Monetary Policy Committee will take place on December 15th, 2022.
This research was provided by CMC Markets, a UK-based financial services company specialising in CFDs and spread betting. Click here to read more.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
###
Notes for editors:
- If you use this story, please include a linked credit to https://www.cmcmarkets.com/en-gb/ as the source.
About CMC Markets:
CMC Markets is a leading global provider of online financial trading and institutional technology solutions, offering clients the opportunity to trade a broad range of financial instruments through its award-winning spread betting, CFD and share trading platforms*. Established in 1989, headquartered in London and listed on the London Stock Exchange as a constituent of the FTSE 250 index, CMC has offices in Australia, China, Singapore, and across Europe. Over 300,000 active trading and investing clients worldwide trade on the company's proprietary platforms, native mobile trading apps and MetaTrader 4. Clients can trade on thousands of instruments across forex, indices, commodities, shares, share baskets, ETFs and treasuries. The platform is backed by competitive pricing and dedicated 24-hour customer service, whenever the markets are open.
*No.1 Platform Technology, ForexBrokers.com Awards 2022.
Contact details:
Should you require further information, please contact Ruxanda Josan at ruxanda.josan@journoresearch.org or Jennifer Newman at j_newman@cmcmarkets.com.
Disclaimer:
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Can we be consistent with the capitalisation. as we've not capitalised the above mention. [GU1]
.
CMC MARKETS PLC 
