Mortgage brokers reacted with disappointment to the Bank of England’s latest interest rate rise, but say they are optimistic it is now at or close to its peak for this cycle, writes Jo Thornhill.
The Bank’s monetary policy committee voted to increase the Bank Rate from 4% to 4.25% at lunchtime today – the eleventh rise in succession since December 2021.
While borrowers on fixed rates are unaffected for now, it will mean further increases for those on variable and tracker rate deals, of which there are an estimated 1.65 million, according to UK Finance.
A borrower with a £250,000 repayment mortgage over 25 years on a tracker deal pegged at one percentage point above Bank Rate has seen their monthly payments rise from £943 in December 2021 (when Bank Rate rose from 0.1% to 0.25%) to £1,498 today.
For borrowers looking for a new mortgage deal, brokers predict fixed rates won’t spike as a result of today’s move by the Bank as most lenders have already priced in today’s increase.
Mark Harris, chief executive of broker SPF Private Clients, said: “At 4.25% it may not be the peak for the bank rate, but it is unlikely to be far off.
“Fixed mortgage rates are influenced by future Bank Rate movements and therefore not directly linked to what is decided this week. Indeed, several lenders have reduced their fixed-rate mortgages in the past few days on the back of declining swap rates, with five-year fixes now cheaper than Bank Rate.”
Rightmove’s mortgage expert Matt Smith agrees: “Lenders will wait to see how markets respond to the Bank’s rate rise announcement before they re-price their deals.”
Volatile situation
Richard Campo of broker Rose Capital Partners believes the recent change in opinion around the direction of interest rates reveals the volatility of the situation: “Many experts now believe the Bank Rate will fall to around 3.5% over the next five years. But back in January we felt it would drop to as low as 3.5% later this year or early next.
“What this proves is that we’re living through a constantly shifting period impacted by inflation uncertainties, wobbles in the global banking sector and recession fears (or not) on the horizon.”
Mr Campo says borrowers who feel interest rates are more likely to fall could risk a variable rate, taking advantage of lower rates later, although he adds: “If you feel rates will stabilise, or you have a preference to sleep better at night, fix for the longer term. No one-size fits all, so it’s about taking the option that suits you.”
Rio Stedford at financial adviser Quilter said short-term fixed rate deals could be a good half-way bet: “For those looking to buy a home or refinance their mortgage, fixing for a relatively short period is likely to be your best course of action as rates are predicted to fall. Therefore, fixing for a long time might mean that you are stuck paying higher rates for longer than necessary.”
Mr Harris at SPF Private Clients said: “Borrowers who believe fixed rates will continue to fall may wish to consider a variable or tracker rate product with no early repayment charges, moving onto a fix should rates become more palatable. However, if rates were to rise and you would struggle to pay your mortgage, then a fix is the sensible option.
“With so much volatility in the markets, it is more important than ever that borrowers seek advice from a whole-of-market broker.”
Lucien Cook, head of residential research at estate agent Savills, said the interest rate increase was likely to further dampen activity in the housing market: “The impact on buyers’ budgets will weigh on house prices especially in the lower rungs of the housing ladder, where debt is the predominant source of funding.”
