The chess game of Interest Rates: Understanding the strategy behind the increase

The Bank of England has confirmed the 13th consecutive rise of interest rates. Now, at a 15 year high, rates have increased from 4.5% to 5%. While this might be good news for savers, many homeowners are concerned about what this means for their mortgage repayments. Lenders have met with the Chancellor and agreed on limited measures to help alleviate the pressure, however, the market remains uncertain. Both existing homeowners and potential borrowers are looking for reassurance, but so are mortgage lenders.

At Home Legal Direct, we think it can be better explained in terms of a chessboard, which brings us to ask: is there simply a clever game being played here?

Lenders make the first move

In recent weeks, we have seen reports of sharp rate increases and product withdrawals from many lenders in the press. By being proactive, they made the first public moves in the anticipation of a base rate rise. Although sparking concern from borrowers, lenders retain the ability to amend their rates when they feel more stable. Following their meeting with the Chancellor, the first steps to reassure them and rebuild their confidence can be taken. Over time, this stability will help to bring down their rates and give customers better deals.

The Bank of England’s turn

Following the news from lenders, the Bank of England responded by announcing the base interest rate rise. This is one of the main tools used by governments to help control inflation. Inflation can be explained simply as the value of money decreasing over a period of time. By making their announcement, the Bank of England hopes it will encourage saving and discourage spending. This helps limit the amount of currency in circulation to bring the value of money back up. However, the knock-on effect is people with large loans, such as mortgages, may find it harder to make their repayments.

The property market is a chessboard

Like a chessboard, the property market holds a lot of moving pieces. With several teams in play, it can be difficult to understand the impact that rising interest rates could have. However, like a game of chess, there is a strategy behind the moves that are made. The increase of the base interest rate is a move by the Bank of England to help combat rising inflation. Although it may raise more questions than answers in the short-term, over time it could also have a positive impact.  

Oliver Meddick, COO of Home Legal Direct, says:  We must allow the game to play out in order to understand the true impact of what it means for the market. Right now, there is a lot of uncertainty, and the media will continue to speculate when only time will tell. Although it is concerning for borrowers, the measures agreed between lenders and the Chancellor shows that support is available. Increasing interest rates might even help to stimulate the market in other ways which means there is potential for more positive changes in the long run.

  

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