3 February 2022
Bank of England raises interest rates
The Bank of England’s Monetary Policy Committee has voted to raise interest rates by a quarter of a percentage point to 0.5 per cent by a majority of 5-4. Those members in the minority voted for a 0.5 percentage point rise to 0.75 per cent, suggesting further rate rises are on the cards. The Bank also announced that it would start to reduce quantitative easing.
The Bank of England has to carefully balance the need to control inflation and meet its 2 per cent target with the wider economic challenges posed by rising interest rates. The markets have already priced in a base rate rise, with mortgage products creeping up and the days of sub-1 per cent fixes long gone.
Borrowers on variable rates or coming to the end of a deal may be concerned that for every £100,000 borrowed, a quarter-point rise adds £250 a year to their mortgage costs. However, as lenders seek to create opportunity and/or cater for demand, not all rates are on the rise; indeed we have seen longer-term fixes fall recently. Furthermore, while the cost of lower loan-to-value (LTV) mortgages has risen, the same cannot be said for higher LTV products.
If borrowers are concerned about the threat and likelihood of rising rates and are coming towards the end of their existing deal or wish to move off a variable/tracker product, they should seek independent mortgage advice. Rates are still historically low and there are good deals to be had if you shop around, ideally using a broker with access to all the mortgage products on the market. You may be able to reserve a rate for up to six months before you need it, therefore hedging against further mortgage rate rises.