Inflation and Bank of England rate rise

ended 17. November 2021

This morning the Office for National Statistics announced that inflation has risen to 4.2%, from ‘just’ 3.1% in September. The result is that the Bank of England will be under phenomenal pressure to raise rates, as early as next month. We sought the views of mortgage brokers about what anyone considering taking a mortgage, or with one, should do.

8 responses from the Newspage community

Star Quote
"We have already seen a number of rate rises from lenders over the past month and, after the extreme spike in inflation announced on Wednesday, the next wave of mortgage rate hikes is likely to come soon. Those who have mortgage deals ending in the next six months are advised to get in contact with their broker to secure a deal while rates are still competitive. Given the pace with which inflation is rising, who knows what the Bank of England could do next."
"The surge in inflation to 4.2% will undoubtedly result in higher mortgage costs for borrowers as lenders are likely to hike up their rates 'today' based on expectations that the Bank of England will follow suit 'tomorrow'. Anyone thinking about getting a mortgage should move quickly to speak to an adviser as some mortgage lenders will allow the current low rates to be locked in at an early stage in the mortgage application process. Those with a mortgage already, particularly where the current deal ends within the next six months, should review their circumstances to see if a better deal can be had."
"If you are considering taking out a mortgage, it makes sense to do this sooner rather than later. However, do not panic if you are not ready. Although rates are starting to creep up, they are still very low relative to long-term trends and there are plenty of great deals still to be had."
"Don't panic. Though we may be seeing mortgage interest rates rise, we are talking here about moving from record-breakingly low, to just really low. It is still more important to look at the other aspects of any mortgage deal; what are the fees, should you fix, do you have a 2, 3, or 5 year deal (or longer)? Don't become fixated on the interest rate, as you could well end up making an expensive mistake."
"A few weeks ago my inbox was being bombarded with emails from lenders advising of rate changes, and for the first time in over a year they were increases. This seems to have calmed down now though as the banks have had time to 'price in' inflation. Interest rates are still incredibly low. Inflation actually benefits borrowers to some degree. If inflation is 4% and you are paying 2% on debt this is what economists call a 'real interest rate' of -2%. There's no reason to panic. Just get good advice and do what's right for your situation."
"If you're in the market to buy your first home, or indeed need to remortgage then get on and do it now, with a view to fixing your rate for as long as is reasonable for you. This gives you the ability to ride out short-term economic shocks and protect yourself from potential future rate rises. The reality is, rates are still very low and they're only going to go one way. However, the best advice to anyone worried by data showing that inflation has risen to 4.2% is to not panic or worry. As the old Stoic masters taught us, we can't control what happens, we can only control how we respond."
Talk. To. A. Broker. Remortgage offers are typically valid for 6 months so if your rate is ending in that period, or if you are already sat on a lender's standard variable rate (which is generally silly anyway), go on Google today, search for 'mortgage advice' in your town, and call whoever has the best reviews to arrange an appointment. Even leaving it a few weeks could cost you hundreds, if not thousands of pounds in extra interest."
“The Bank of England are under huge pressure to raise the base rate and many expected that raise to have happened at their last meeting. On that occasion, they were worried about just how fragile the UK economy might be and in particular what impact on unemployment we would see after the furlough scheme came to an end, we now know that unemployment is extremely low hence an interest raise now carries less risk. We have of course already seen many lenders raising their rates in preparation of the Bank of England action and I can see the base rate returning to the pre pandemic level of 0.75% over the coming months and whilst historically this is still a very low rate, it is nonetheless a significant increase on the current 0.10% and that can only ,mean one thing, higher mortgage rates. We have seen an increased number of clients wanting to look at their mortgage, most with a view to obtaining a low fixed rate now to add stability for the next few years. Many will now be attracted to longer term fixed rates, such as five, 10 or even 15 year deals, rather than just looking at the lowest monthly payments now.”