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MPC cuts base rate – but mortgage rates unlikely to fall in short term

The Bank of England’s Monetary Policy Committee has gone through with a rate cut of 0.25% – bringing the base rate to 4.75%.

However, with swap rates rising after the Autumn Budget, it seems unlikely borrowers will benefit from much in the way of mortgage rate cuts in the near future.

Peter Stimson, head of product at MPowered Mortgages, said: “Anyone hoping that the Bank’s decision would instantly open the floodgates to cheaper mortgages is likely to be disappointed.

“In fact the mortgage rates offered both to new borrowers and remortgagers could even increase in coming weeks.

“There are two reasons for this. The first is that today’s Base Rate cut of 0.25% had widely been seen as a certainty, which financial markets have been pricing in for weeks.

“The second is less obvious. The swaps market – which is essentially the wholesale cost of fixed rate money that lenders offer out as mortgage loans – has been rising since mid-September.

“Several lenders have even been offering mortgages at below the swap rate just to win business. Longer term, this position isn’t sustainable and mortgage rates will need to rise to reflect the current position of fixed rate money.”

The committee voted 8:1 for the cut, with the one outlier voting for a hold.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The Bank of England has delivered one more cut for the road, before it’s widely expected to shut up shop for a while and wait for the dust to settle. This comes as no surprise, after inflation fell below target, services inflation backed off and wage rises slowed.

“However, there’s a growing expectation that we won’t get a December cut. The Bank has said for a long time that inflation will rise as the impact of energy price cuts drops out of the figures. However, events of recent weeks have raised the risk of additional inflation.

“More borrowing in the Budget, a higher national living wage and rises in employer National Insurance contributions, have raised concerns that inflation could make an unwelcome return. The Bank estimates it will add around half a percentage point to inflation at its peak.

“However, it emphasised that we don’t yet know how much of higher employer costs will pass into prices and how much will be absorbed by businesses.

“In this environment, the Bank is wary of cutting rates further and fuelling more spending.”

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