UK families are set to feel the financial pain as the Bank of England prepares to increase interest rates for the twelfth consecutive time. Experts predict that the base rate will rise from 4.25% to 4.5%, and forecast that the rates will continue to climb to almost 5% later this year, causing further financial difficulty to the 1.4 million people on variable mortgages. This group will pay thousands more per year than they did in December 2021 when the base rate was at a low of 0.1%.
Another rate hike is not what the British public wants. Many households are already struggling to keep up with their mortgage payments, and another increase will only make things even more challenging. Property prices are already decreasing because of the cooling housing market, but further rate hikes and lenders maintaining high rates on offer will only make things worse.
Inflation has fallen more slowly than anticipated, and the rate hike is expected to impact the 1.4 million people on variable mortgages first. Fixed deals and variable rates that sit below the base rate will see nothing immediately change from the Bank of England’s decision. However, they will face a significant increase in their repayments if their deal is close to ending – leaving them with a tricky choice.
As we have seen, lenders have already raised the pricing of their fixed-rate loans, anticipating the base rate to go up. Despite this, lenders were still lowering their fixed rates last month because fewer people were applying for home loans. However, this no longer seems to be the case, as more people are seeking out mortgages, and lenders are again seeking to make rates more competitive to secure business.
One thing is for sure, those still enjoying a low fixed rate will have to consider what the future holds. If inflation doesn’t ease back further, then we may see more base rate rises becoming necessary. Fixed rates have stabilised for now, but if further rate hikes seem necessary, then we could see some upward pressure on fixed rates feed through.
Related Facts:
– The average price of a home in the UK is currently £290,000.
– Those on fixed-rate tariffs will not be affected by any changes to their contract until it comes to the end of their term.
– Those coming off fixed-rate deals onto variables may be able to halve their rate by switching to cheaper fixes.
– Inflation fell to 10.1% in March from 10.4% the previous month, with the Bank forecasting 9.2% in early February.
Key Takeaway:
The Bank of England is set to raise interest rates, causing further financial pain for 1.4 million people on variable mortgages. Fixed deals will remain unchanged. However, once they end, households face a tricky choice between another fixed rate or a tracker. The housing market is already cooling, and further rate hikes are likely to make things worse.
Conclusion:
The Bank of England’s decision to raise interest rates will mean increasing financial hardship for mortgage holders on variable rates. Unfortunately, there does not seem to be any clear path out of this rate-hiking cycle, and future predictions are fluctuating. Those with fixed-rate arrangements will enjoy a reprieve for now, but as their terms come to an end, they will face a tough choice, given the future uncertainty. As always, seeking advice from a mortgage broker can help households make informed decisions.
