Stand by for a possible interest rate rise today

Analysts suggest there is a 50:50 chance of a base rate rise being announced by the Bank of England’s Monetary Policy Committee today. 

The base rate - the country’s main interest rate - has been below 1.0 per cent for 12 years and was dropped to a historic low of just 0.1 per cent in March 2020, as Coronavirus gripped the nation and destabilised the economy.

A rise today, or at the MPC’s next meeting in early December, would signal a return to something like normal lending conditions, but its effect on the housing market may be relatively modest.

Around 50 per cent of all homes are owned outright anyway, with no mortgage owed on them, and of the rest around three quarters have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends. 

The remaining two million owners are on standard variable rate mortgages or tracker mortgages so their repayments will go up as individual mortgage lenders increase their rates in response to the Bank of England announcement.

Robert Gardner, chief economist at the Nationwide, says: “Investors expect [Bank of England base rate] to be increased … before the end of the year – most likely to 0.25 or 0.5 per cent – and perhaps reaching 1.0 per cent within a year, though markets project they will remain close to that level in five years’ time.

“Providing the economy does not weaken significantly, the impact of a limited rise in interest rates on UK households is likely to be modest. This is partly because only a relatively small proportion of borrowers will be directly impacted by any change … the share of outstanding mortgages on variable interest rates and which are therefore likely to see an increase in payments if Bank Rate is increased has fallen to its lowest level on record, at circa 20 per cent, down from a peak of 70 per cent in 2001 and circa 60 per cent in 2011.

“Moreover, even a 0.4 per cent increase in rates (to 0.5 per cent) is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an interest rate increase of 0.4 per cent would raise monthly payments by £28.”

Guy Gittins, chief executive of London-focussed estate and lettings agency chain Chestertons, says: “We expect the anticipated small increase in interest rates to spur more buyers to finalise their property search sooner rather than later in order to benefit from the currently more favourable rates.” 

The decision of the Bank of England Monetary Policy Committee is expected at noon today.