The Iran Conflict, the Interest Rate and How It Could Affect You

Breaking News …. Bank Rate Held at 3.75% Again

It was widely predicted that progress on inflation – now down to 3% – would have heralded another cut to Bank Rate.

Cue happy homeowners, lovely spring flowers and everything in the garden being rosy.

But the war in Iran has cast a very dark shadow over everything.

There’s a worry that rising oil prices will push the price of pretty much everything we buy up and cause inflation to spiral.

So, the Bank of England faced a dilemma: Should they continue cutting the Bank Rate to support the economy, risking further fuelling inflation?

They decided to play it safe by holding the rate at 3.75%.

What the future holds

This is a really tricky one to call.

It depends on how long the situation in the Middle East lasts and what effect it has on oil prices and UK inflation.

The best-case scenario is that the situation will stabilise very soon. That could see rate cuts back on the table later in the year.

James Smith, Developed Markets Economist UK, at ING Bank says: “We think rate cuts are still more likely than hikes, though we could be in for a long pause should energy disruption linger.”

Some experts are more pessimistic, suggesting rates could rise slightly.

The National Institute of Economic and Social Research (NIESR) forecasts that a surge in energy prices could push the Bank Rate above 4% by the end of the year. **

What this means for mortgages

Bank Rate isn’t the same as the interest rate on your mortgage. Borrowers with fixed-rate mortgages can relax for now. They won’t see any change in their repayments.

For new mortgages, many lenders have nudged up their rates – but they have been fairly modest so far.

According to Moneyfacts, the average two-year fixed rate is now 5.18%, compared to 4.86% a month ago. The average five-year fix is now 5.24%, up from 4.97%. ***

The impact on buyers, sellers and landlords

If you’re buying, run through the numbers carefully: If you find a home you love and a mortgage deal that’s affordable, then moving could still be on the cards.

Take expert financial advice where you need it.

If you’re looking to sell, remember this: A properly priced home should always attract buyer interest.

Spring is around the corner, and that’s usually a great time to put your home on the market.

Take expert advice on selling from a good local estate agent.

If you’re a landlord: Quite apart from the interest rate, the Renters’ Rights Act comes in on 1 May. It will bring many challenges.

But demand from tenants is strong this spring, and rent levels are healthy. So there are at least some positives for landlords.

Now is probably the time for everyone to keep a cool head.

Make you, your family and your personal finances numero uno. Put them before whatever else is happening in the world.

As your local independent agents, we’re here to help you with expert advice on the local property market.

Don’t hesitate to give us a call if we can help.

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Sources:

* ING: Why the bar is high for the Bank of England to hike rates

** Middle East Conflict: Macroeconomic Impacts of Rising Oil and Gas Prices

*** Moneyfacts