Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

Bank of England's Huw Pill Pushes for Base Rate Rise Despite Tighter Mortgage Conditions

Bank of England Chief Economist Huw Pill has voted to raise bank base rate (BBR) from 3.75% to 4% at recent Monetary Policy Committee meetings, arguing the move would send a clear message that the bank remains determined to tackle inflation. Writing in Mortgage Solutions, Sebastian Murphy, group director at JLM Mortgage Services, questions what a further rise would achieve when mortgage borrowers already face significantly tighter financial conditions.

Mortgage rates have already risen

Murphy notes that while BBR remains at 3.75%, mortgage rates have not stayed where they were earlier in the year. Swap rates have risen considerably as markets reacted to events in the Middle East and the resulting impact on oil, gas and energy prices.

Average two-year fixed mortgage rates that could be secured at around 3.7% in February are now more likely to be around 4.6% or 4.7%, depending on borrower circumstances and loan-to-values (LTVs). Borrowers refinancing or purchasing are already dealing with borrowing costs around one percentage point higher, and are paying considerably more each month as a result. Murphy also points to reports of major lenders upping rates again.

What would a higher base rate change?

Murphy acknowledges that Pill is not suggesting a base rate rise would directly bring down the price of oil or gas, but rather that he is concerned external price shocks could become embedded in the wider economy through wages, prices and inflation expectations. Murphy argues there should be sufficient evidence of these second-round effects before adding further costs to households already dealing with higher mortgage rates, higher energy costs and wider cost pressures.

As the bank itself has acknowledged, monetary policy cannot influence energy prices, and Governor Andrew Bailey has repeatedly highlighted the limits of what the Bank of England can do about geopolitical events. The MPC cannot change what is happening between the US and Iran, reopen the Strait of Hormuz or bring wholesale gas and oil prices down.

Impact on borrowers

According to Murphy, increasing BBR to 4% would achieve none of those things, but it could increase payments immediately for tracker borrowers, potentially feed through into standard variable rates (SVRs) and place further pressure on mortgage pricing and household confidence.

For letting agents and inventory clerks, the picture is one of continued pressure on landlords and tenants alike: higher refinancing costs for borrowers, rising SVRs potentially affecting buy-to-let holders, and household confidence under strain, all factors that shape the rental market in which agents operate.