Today the Bank of England have put up interest rates for the eight consecutive time and by the largest amount since 1992. I remember Black Wednesday, the last time rates went up by this amount in 1992, I was in sixth form and it was discussed in my A level Economics class. Back then the government were in charge of setting the rate, now the Bank of England has autonomy to set rates independently as it sees fit.
What Does It Mean for my Mortgage?
If you have a tracker mortgage then your lender will be in touch to notify you of the increase and inform you of what your new payment will be from next month, as a rule lenders tend to apply any rate changes the month after the change.
The jump is 0.75% from 2.25% to 3%. So if your tracker is Base + 1% you’ll now be paying 4%.
If you are on a fixed rate then your payment is not going to change until you reach the end of your fixed deal. You will need to keep an eye on when your deal expires and speak to your broker or your lender around six months before that deal expires.
What does the Future Hold?
Clearly a difficult question. The Bank of England Governor, Andrew Bailey has today said:
“From where we stand now, we think inflation will begin to fall back from the middle of next year, probably quite sharply.”
“To make sure that happens, bank rate might have to go up further over the coming months.”
“We can’t make promises about future interest rates. Based on where we stand today, we think bank rate will have to go up by less than currently priced in financial markets. And that’s important because, for instance, it means that the rates on new fixed-term mortgages should not need to rise as they have done.”
The BoE governor adds that today’s decision “should not lead to higher mortgage rates”
I’d say that last sentence is reassuring, mortgage rates started going a bit crazy about six weeks ago and in the last few days we have seen some lenders reducing rates, albeit very small reductions. The markets seem to be pricing in a high of around 5.5 to 5.75% which is a little lower than the previously thought 6%. It is still the case that a five year (in some cases 10 year) fixed rate is priced lower than two year fixed rates, which is strange as usually you would expect the longer the fixed rate the higher the rate will be. I am reassured by the small reduction over the last few days and think the market will regain some competitiveness over the coming months.
However I think we need to be prepared for tough times ahead, house prices potentially falling by around 10% and the cost of living continuing to increase so it is important to keep an eye on your mortgage rate and when your current deal expires. There is no doubt if you are approaching the end of your fixed deal you need to be prepared for an increase in your mortgage payment.
As ever I am delighted to discuss your options with no obligation.
