Another Interest Rate Rise
The Bank of England Monetary Policy Committee, (MPC), have today announced that they are increasing Bank Base Rate by 0.50% to now stand at 1.75%.
Many were predicting that this time they would go heavy with a 0.5% rise, following a more aggressive approach by their US counterparts, and this time they have done exactly that with the biggest interest rate rise in 27 years.
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:
“It’s batten down the hatches time for Britain’s mortgage holders. The Bank of England had little choice but to bare its teeth today with this 0.5% hike and more rate rises are almost certain this year to control the runaway train of inflation, which will only pick up speed as it is boosted by more energy price hikes in the Autumn.
“The worry is that these rate rises are doing little to help and the higher we go, the more borrowers will start to hurt and struggle with the additional burden on top of the ever-growing cost of living crisis.
“We have already seen lenders putting up their rates again this week in preparation, but borrowers should now be prepared for some further changes from lenders with little notice.
“For those looking at buying, quick decisions need to be made before lenders hike their offerings, whilst those looking at remortgaging should be looking at locking into a rate six months before their existing product expires.
“With average rates for two and five-year fixed having increased dramatically already since the turn of the year, this rise will add a further £58 per month onto a £250,000 25-year repayment mortgage, or £104 per month on an interest-only loan”.
For more detailed information on rising inflation, base rates and mortgages take a look at our handy guide.
Another big story has been the fact that the Bank of England has now officially scrapped its additional stress test. It was given quite a big billing in the press, as this test made lenders stress affordability against a future interest rate rise of 3% above their variable rates, so around 7%.
Lenders still need to use a stress of at least 1%, but the reality is that changing their stress test down to this level is a choice for lenders, and many seem to be happy as they are. Also, this only affects borrowers who are fixing for less than 5 years or taking a variable rate. You may see some borrowers able to borrow slightly more but for the most part, this is countered by the increased cost of living in any case. Any difference may well come in the future when this particular cost of living cycle has abated.
What also remains is the fact that lenders are only allowed 15% of their lending to be at income multiples above 4.5 times, which is much more of a constraint.
That said, there is still some movement here and Nationwide have just announced that they are increasing their maximum income multiple to 5.5 times for borrowers earning above £100,000 per annum. This is up from 4.49 times so a big shift for higher earners.
Best Mortgage Rates
In terms of mortgage rates, for standard residential mortgages, borrowers can obtain 2-year fixes at 3.09% (4.40% APRC) and 5-year fixes from 3.11%, (4.10% APRC), whilst variable tracker rates are around from 1.91%, (4.10% APRC).
Those looking at Buy-To-Let can now obtain products from 1.89%, (4.80% APRC) for a 2-year tracker or 5-year fixes are available from 3.04% (4.60% APRC).