The Bank of England’s monetary policy committee is set to meet today to consider a possible rise in base rate - which in turn would be likely to trigger mortgage interest rate hikes.
These possible increases are in response to the announcement of a 30-year high inflation figure of 5.4 per cent recorded in December, and this week’s statement of a 17-year high Nationwide annual house price growth of 11.2 per cent.
Business consultancy Hargreaves Lansdown says today’s decision is highly likely to see a rise in base rate from the current 0.25 per cent to 0.5 per cent, with analysts anticipating a rise to 1.25 per cent - five times the current rate - by the end of 2022.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, says: ‘’The nervousness rippling through the financial markets about the prospect of rate rises is unlikely to abate this week, ahead of the Bank of England’s monetary policy committee meeting.
“Policymakers have wrong-footed the market before, and there is always a chance they could do so again. But with the Omicron variant a short, sharp shock, rather than lingering malaise for the economy, and jobs numbers so buoyant, it is likely that keeping a lid on inflation will still be the biggest factor concentrating minds around the table.
“Companies reliant on big borrowing to fuel their growth plans have been highly sensitive to expectations that the era of cheap money is coming to an end. Housebuilders have also been on the back foot, amid concerns that succession of rate rises could lead to a cooling of the hot housing market.
“Banks though have been more resilient, with the prospect of their loan businesses becoming more lucrative. Investors will be watching closely for comments from policymakers about the direction of future rate rises, and an indication that more will come sooner rather than later is likely to accelerate these trends.’’
Hargreaves Lansdown says borrowers on variable rate mortgages can expect the rise to be passed on swiftly, and those who are remortgaging to a new fixed rate will feel the pain too.
The first of the rate rises came hot on the heels of the last hike, and have been feeding through into mortgage deals ever since.
HL says the Bank of England’s aim is to raise rates slowly and steadily.
The consultancy says: "However, this doesn’t really have the same impact if we’ve fixed our mortgages for years, because we’ll face the consequences of all these rises at once. So, for example, if someone currently paying one per cent on a £200,000 mortgage over 25 years remortgaged at the end of the fixed period to a new deal costing two per cent, it could push up their monthly costs by £94.”
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Rent prices will increase to cover any increases in buy to let mortgage payments. That's inevitable. A property investment has to be profitable or it puts the tenants at risk. Oh, and it's got to be profitable or nobody would invest in property!
Senationalist headline, but most analysists have been predicting that the base rate would peak at a still very low 1.5% by late 22/early23 for some weeks now, which I think most borrowers would be delighted with in context of rpi currently running at 7.1% and all the media hype. The perception has been we would need more swingeing increases to get that under control, but there is an acknowledgment from the BofE that a good deal of this inflation is a temporary hangover from 18mths of repressed spending, eg: credit card borrowing in November smashed all previous monthly records as everyone went mad for a Christmas that wasnt cancelled, I am surprised the financial markets are not well aware of that context.
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