Despite much speculation, the Bank of England decided to leave interest rates at their record low of 0.1% in November. However, with inflation continuing to rise, it looks increasingly likely that the base rate will rise in the next few months.
With the rate of price growth forecast to hit 5% in the spring, many lenders have already priced in a base rate rise by increasing the cost of their mortgage deals.
So, if you’re thinking about switching your mortgage, experts are urging you to act quickly to take advantage of the exceptional rates currently available. Read on to find out why it’s crucial to move fast.
Experts believe the Bank of England could raise interest rates soon
One of the main roles of the Bank of England is to keep control of inflation. In recent months, the rate has exceeded 3% with the bank itself forecasting it could reach 5% in spring 2022 – more than double the Bank’s own 2% target.
To control inflation, the Bank of England can alter interest rates.
When interest rates are low, inflation tends to rise. In simple terms, this is because consumers are encouraged to spend their money as they are not receiving much interest on their savings. This drives up prices.
Conversely, when interest rates are high, more people save their money rather than spend it. So, inflation tends to fall.
The base rate has been at a record low of 0.1% since the start of the first lockdown in March 2020. This cut was designed to encourage spending to stimulate the economy as the pandemic struck.
Data from the Bank of England
If the Bank of England increases interest rates, inflation should fall. So, it’s no surprise that many commentators are predicting an interest rate rise – perhaps even as soon as December. Experts also predict the base rate will continue to rise in 2022 and could reach 1% by the end of the year.
It’s interesting to note how quickly sentiment has changed. It was only a couple of months ago that the market was not anticipating the first move from the Bank of England until summer 2022.
So, with interest rates set to rise, now is the time to act if you want to benefit from record low mortgage deals.
Millions of borrowers on variable deals should consider a switch
Industry body UK Finance estimates that more than a quarter (26%) of residential mortgages are on a variable rate, equivalent to around 2.2 million borrowers.
Of those, around 850,000 have tracker deals, which are directly linked to the base rate. A further 1.1 million are on a lenders’ standard variable rate (SVRs). Both these types of deal would be expected to become more expensive if the base rate were to rise.
A 0.15% increase for a borrower with a £300,000 repayment mortgage over 20 years would add around £23 a year to repayments – totalling around £276 a year.
A further rise of 0.25% in 2022 would add another £38 a month to repayments – bringing the total annual increase to around £730.
(Figures using Which? repayment calculator)
If you’re on a variable rate – particularly if you’re on your lender’s SVR – then it’s a great time to review your arrangements. Talk to us and we can give you advice on the most appropriate deal for you.
If you’re already on a fixed rate, then you won’t be affected immediately. However, when your fixed rate ends, your repayments usually revert to your lender’s SVR. If interest rates rise, this rate is likely to be higher in the future.
Lots of the very best rates are starting to disappear
While the base rate may not have risen yet, many lenders have withdrawn some of their cheapest rates in anticipation of a rate hike.
Financial information website Defaqto found that ultra-low-rate fixed deals have been disappearing from the market in recent weeks. In just a week from 25 October, the number of fixed-rate mortgages available at 0.84% to 0.99% fell from 82 to just 22.
For example, Barclays increased its rates by as much as 0.35%. Other lenders who have brought in increases recently include NatWest, Santander, Nationwide, and TSB.
Borrowers “urged to act quickly”
While many lenders have started increasing rates on mortgage deals, there are still some exceptional products available – but you will need to move fast.
There are still some sub-1% deals in the market, although it’s likely these won’t last for very long given the upward pressure on interest rates.
Waiting and delaying a decision can be costly. Using the Barclays example above, if you’d waited, missed out on their low-cost deals, and ended up with a rate that was 0.35% higher, on a £300,000 repayment mortgage over 20 years you would have paid around £47 a month more.
Get in touch
We have access to many exceptional rates and can often “book” deals with a lender to ensure you benefit from the specific low-rate product you want. We don’t expect the current “best buy” deals to stay for very much longer, so acting quickly can help you to take advantage of the current rates.
Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
