It is all change again in the will they / won’t they world of interest rates. Economists and the markets now believe there is a 90% chance of the Bank of England hiking rates to 0.75% on Thursday.
It really is extraordinary to see how all this speculation changes from week to week. Consumers don’t know what to think at any one time.
What we do know is that in recent days economists have become more confident that some better economic data shows that growth has rebounded and there is an expectation that wage growth will also strengthen over the next 6 months, whilst inflation is expected to rise further. There is also a strong view that rates need to be higher in order to be cut again if Brexit causes even more chaos.
Although on the face of it a rise to 0.75% is not a massive change, this would still be the highest rates have been since way back in March 2009. That is almost 10 years of ultra-low interest rates.
On a £250,000 loan over 25 years, a 0.25% rise would add approximately £29.44 per month on a repayment mortgage and £52.08 on an interest-only basis. That’s £11.85 repayment & £20.83 interest only per £100,000 loan.
If there was to be a rise on Thursday, lenders would no doubt waste no time in increasing their rates as this is something they have been waiting to do for a while. This will give them a timely boost to profits as it will allow them to immediately charge borrowers more. Rates to savers will change at a slower pace or even not at all. I suspect some to announce their changes within hours of the rate decision. If not minutes, once the cheers have died down!
In terms of the current product offerings, however, we may not see much immediate change apart from tracker-rate products which will rise almost immediately. Fixed rate mortgage products may have already priced in such a rise and although there is no doubt lenders will probably take the opportunity to charge more, the prevailing competitive pressures meant that lenders will still be keen to remain at the top of the Best Buy leagues.
If you are concerned about rate rises, the first thing to do is not panic. Even with a rate rise sooner rather than later any future rises are expected to be slow and gradual. That said if you are worried it is definitely worth getting professional advice now and get a mortgage health check. It may be that you can lock into a fixed rate sooner than you think, (around 6 months before your rate expires). It may even be worth breaking your current product early, paying the penalties and switching to a new rate. A decent broker, will be able to do these calculations for you quickly and most importantly, honestly.
I would also advise speaking to your existing lender to see if they would offer an option that may avoid penalties. A good broker will be able to compare this with the rest of the market to ensure you get the best options.
It is worth mentioning that if there is still no change, serious questions will be asked of the Bank of England Governor and just how worried he is about Brexit. The Governor of the Bank of England Mark Carney is not nicknamed “the unreliable boyfriend” for nothing!
At the moment, borrowers can still obtain 2-year fixes are available at 1.44%, (3.59% APRC) and 5-year fixes from 1.80%, (3.20% APRC). Variable discounted rates are around from 0.99%, (4.37% APRC).
Those looking at a Buy-To-Let mortgage can still obtain products from just 1.38%, (4.50% APRC) for a 2-year fix.