The latest Bank of England base rate increase saw a 0.25% jump to 5.25%, which was the 14th consecutive increase. What should happen with the base rate is discussed eight times a year by the Monetary Policy Committee (MPC). The next meeting will be held on Thursday 21st September. It’s been predicted that another 0.25% increase will occur, hiking the base rate to 5.5%.
With many homeowners already in dire straits trying to keep up with ever-increasing mortgage payments, this is not good news. But why has another rate increase been predicted, what impact will that have on mortgage payments and will mortgage rates go down eventually?
A predicted interest rate increase
The MPC is comprised of nine members who meet regularly to review the economy. They decide what action needs to be taken regarding interest rates. A policy recommendation is put forward by the Governor of the Bank of England, which is currently Andrew Bailey. The committee members then hold a vote, with the majority vote deciding the new interest rate policy.
The continuous rate increases so far have been put in place to combat the high inflation rate. As the inflation rate is now falling, this shows that the tactic is working. It dropped to 7.9% in June and then down to 6.8% in July. However, that’s still considerably higher than the target rate of 2% set by the Bank of England.
Whilst the decreasing inflation rate is encouraging, a cautious approach is still being taken to get inflation under control. As such, a further rate hike has been predicted when the MPC holds its next meeting. Some members of the MPC have already stated that they believe the base rate should increase by 0.25%. Others, however, feel it should go higher with a 0.5% increase.
The impact on mortgage payments
If the base rate does increase again as expected and you have a tracker mortgage, your rate will increase in line with it. This will be the case with each subsequent increase unless you have a capped rate for your tracker mortgage. In this case, your tracker rate would only go as high as the cap. This is regardless of how high the base rate may go.
If you’re paying your lender’s standard variable rate (SVR), it’s likely that your rate will increase if the base rate does. Lenders set their own SVRs and can change them whenever they want to and by any amount. As a base rate increase would mean that your lender has to pay higher rates, it’s more than likely that they’ll increase their SVR to compensate for this. The amount won’t necessarily mirror the base rate’s increase, however.
With a fixed rate mortgage, you can have peace of mind that your rate won’t increase until your fixed-rate deal ends. When it does, your rate will switch to your lender’s SVR unless you’ve arranged a new deal to start as soon as the fixed one finishes.
When will mortgage rates go down?
Some of the UK’s biggest lenders have already begun to reduce their rates. This is in response to the inflation rate dropping, falling property prices and a lack of buoyancy in the property market. It’s hoped that these mortgage lenders will offer further reductions in their rates and that other lenders will follow suit.
Mortgage lenders have been instructed by the government to offer help to homeowners who are struggling to meet their mortgage payments in the current climate. Measures have been agreed upon by lenders, the Financial Conduct Authority (FCA) and the government. They are detailed in the Mortgage Charter. You may also be able to get financial help from the government towards your mortgage interest payments. This is via a loan called Support for Mortgage Interest (SMI).
For further details on the Mortgage Charter or SMI, give our mortgage brokers a call on 01322 907 000. They can also take a look at your current mortgage deal and compare it with the alternatives available. With access to exclusive broker-only deals, they may be able to offer you a new deal that’s better suited to your needs than your existing one.