16 February 2022
As inflation continues to rise, are more interest rate hikes inevitable?
As inflation rose to a 30-year high of 5.5 per cent in January, there are fears that more interest rate rises are inevitable. But borrowers shouldn’t necessarily panic about the potential of rising mortgage costs as it has been a mixed picture recently with regard to pricing.
Since the lows of last October when rates hit rock bottom, lower loan-to-value (LTV) products – the cheapest of all mortgages with the smallest margins for lenders – have been on the rise. For example, for a two-year fixed-rate mortgage at 60 per cent LTV you would have paid 0.79 per cent; now the equivalent rates are circa 50 to 60 basis points higher. On five-year fixes, Nationwide was charging 0.94 per cent at 60 per cent LTV in October; now that is 1.44 per cent.
However, the picture is not uniform with borrowers at higher LTVs able to benefit from lower rates than they could in October. Then, a two-year fix at 90 per cent was 1.79 per cent with the Halifax; now rates start from 1.64 per cent with HSBC.
Pricing on long-term fixes has fallen so if you are in the market for security over the longer term, you will pay less for it. The best 10-year fix available in October was just under 2 per cent from Virgin and Barclays, both pegged at 1.95 per cent, but now, Halifax offers a ten-year fix at 1.68 per cent.
Fixes always provide certainty and there are still many attractively priced products available. If you’re coming towards the end of your current deal, you could reserve a product now before rates rise further. If you can’t afford to be wrong i.e. if interest rates were to rise again, you would struggle to pay your mortgage, then a fixed rate makes sense. Lenders will let you reserve a rate for three to six months before you actually need it so it’s worth planning ahead.
However, when considering the security of a fix, it is important not to fix for longer than you are absolutely sure about or you may have to pay a hefty early repayment charge to get out of the mortgage early. Consider your needs and motivations – what events have you got coming up that will change your situation and requirements? If you are attracted to a product purely because of the price, you may end up with the wrong deal and it could turn out to be an expensive mistake.
The best way of ensuring you get the right deal for your circumstances, and don’t pay more than you need to, is to consult a mortgage broker like SPF Private Clients. Our experienced advisers will guide you through the process from start-to-finish.