The Bank of England is expected to continue pushing the rate up throughout the year
The Bank of England has continued its trend of increasing the base rate throughout 2022, with the latest rise putting the rate at 1.25%.
The Monetary Policy Committee (MPC) are expected to maintain these rises, with further increases anticipated during the remainder of the year and into 2023.
“We all know the increasing cost of food, fuel and energy is impacting every household in the UK, but, on top of this, many homeowners will soon start to feel the impact of the base rate increases, with the knowledge that more rises are expected in the coming months,” said Paul Broadhead (pictured), head of mortgage and housing policy at the BSA.
Broadhead explained that while it will take time for the increases in mortgage rates to be felt by most borrowers, with around 80% of existing mortgages on a fixed rate, those fixed deals will come to an end - and he said borrowers need to consider the impact alongside all the other increasing demands on their monthly earnings.
“Judging by the most recent UK inflation figures which have recently reached 9.4%, rising at the fastest rate in 40 years, it seems inconceivable that the MPC would not continue to increase the base rate at future meetings,” said Rob Clifford, chief executive of Stonebridge.
Clifford added that there have been rumblings from some members of the MPC that it needs to go further and faster in order to try and put some serious curbs on inflation. MPC member Catherine Mann, who voted for a 0.5% rise at the last meeting, said she believes in a “more robust policy move”.
Following the latest increase, Clifford outlined that Capital Economics has suggested it now believes that the base rate will need to rise to 3%, rather than the previous prevailing consensus of 2%, in order to begin moving inflation in the other direction.
“I tend to feel slightly more positive than that assessment but can certainly see the base rate hitting 2% or 2.5% over a relatively short period of time. That sort of rise, perhaps over the next year or so, has an air of inevitability about it,” he added.
Read more: Bank of England issues latest rate announcement
However, he believes this fast-paced rate activity is clearly causing many existing borrowers and would-be purchasers to act and, with rates still competitive, he said consumers can still secure the rate security and certainty they need, while advisers are in a very strong position to deal with this increase in demand.
Looking at remortgaging, Broadhead said while the financial impact could be less than people expect, for those on a typical five-year fixed rate mortgage, he believes it is likely to cost less than £35 more a month to remortgage to a new similar deal - this is in addition to price rises in almost all other areas of household spending.
“The impact will be more for those on two-year fixed rates, with their remortgage likely to increase their payments by up to £80 a month,” he added.
Interestingly, Broadhead said for those who fixed for five-years on a higher loan to value (LTV) deal, they are likely to be around £100 a month better off.
“We always encourage anyone coming to the end of a fixed term deal, or on a lender’s standard variable rate, to look at whether they can save money by switching to a new mortgage, and in a rising interest rate environment, the financial benefit of doing this could be even greater,” Broadhead added.
He went on to say that he urges any borrower who is struggling financially, not to ignore this but to ask their lender for support as soon as possible, preferably before they go into mortgage arrears.
“Building societies are sensitive to the rising number of homeowners facing a squeezed budget, and will do everything possible to help them,” he said.
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Broadhead explained that building societies’ commitment to supporting borrowers was demonstrated during the pandemic, when 465,000 mortgage deferrals were provided to those struggling - while this scheme may have ended, he said individually tailored support for those in difficulty has not.
The type of support offered will depend on individual circumstances, but Broadhead said this could include options such as a temporary move to interest only, a temporary reduction in the monthly mortgage payment or an increase in the loan term which will decrease monthly repayments.
“We have produced a booklet with National Debtline, What to do if you can’t Pay Your Mortgage, which gives straightforward guidance and six simple steps on actions to avoid home repossession,” he said.
According to Broadhead there is a strong will from building societies to support people through the current cost-of-living crisis and to do everything possible to keep people in their homes.
“They just need to know who and when families need help before their financial position becomes too difficult to resolve,” he concluded.
