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Another month. Another nudge.



They say that there are two things in life that are certain. One is death (how utterly depressing). The other is taxes (slightly less, but still very much, depressing). Well, perhaps there’s something else to add to that list. And that’s that the Bank of England Monetary Policy Committee will raise interest rates when they meet. Because, for each of the last five occasions when the committee of nine has entered the room, they have chosen to increase Bank Rate by 0.25% when they’ve come out. It now stands at 1.25%, the highest level it has been at since the start of 2009.


Of course, all joking aside, we don’t expect this to be a given every month, but general upward movement is certainly with us for some time. The Bank is still expecting that rates will rise to a peak of 2.5% by the middle of next year, before falling back again. But, as we have said before (and will probably say again), in the general scheme of things, this is still really, really low.


What more did the Bank have to say?

The Bank expects the overall economy to immediately weaken. They are forecasting a fall in the economy for this quarter, signalling a shrinking of 0.3% in the second quarter of this year, and for inflation to continue to rise. On that point specifically, when we last provided an update just a month ago, the Bank predicted that inflation would probably hit 9% in the coming months (which was an increase on their previous forecast) and was likely to breach 10% by the end of the year. Well, you can now add 1 to all those figures. Because it has already hit 9% and they are now talking about the rate breaking the 11% mark in the autumn, when the energy price cap will once again be raised.


You probably don’t need us to tell you this, but the cost-of-living crisis, driven in a big part by the ever-rising cost of energy, the continued war in Ukraine, and Brexit are all big influencers here.


Also of interest is the fact that three of the nine members voted for a sharper increase of 0.5%. We will have to see how this plays out in the coming months.


What does this mean for mortgage borrowers?

Well, firstly, if you have a variable rate mortgage that’s linked to Bank Rate, or you are paying a lender’s Standard Variable Rate, your mortgage is probably about to go up. If you’ve got a mortgage of £250,000, it’s going to cost you around £25 more per month. For those with fixed rates, if you’ll excuse the statement of the obvious, it’s as you were.


There’s no hiding from the fact that this all feels worrying, to say the least. But when it comes to mortgages specifically, we must retain a sense of perspective. Rates are still, relatively speaking, very low. After all, some of us are old (although we prefer wise) enough to remember rates of over 10%.


As with the last time Bank Rate moved, we believe that the vast majority of UK lenders knew this was coming and therefore have already priced this into their products. We’re not expecting a swathe of product withdrawals and a subsequent hike in rates. If lenders do make moves to raise their rates, we expect it to be gently done.


Looking specifically at mortgage rates, you can still get a five-year fixed rate mortgage, for example, below 3%. At the risk of sounding a little Del Boy(ish) this still represents a significantly good deal.


Our general advice (although we, of course, prefer specific advice) is that if you are due to come off an existing deal soon then now is unquestionably the time to act. If you’ve got six months or anything less than that, then let’s start the conversation. This is important for two reasons. Firstly, because rates are likely to continue to move upward and securing a new deal now therefore makes obvious sense. But secondly, and of perhaps even more importance, is that the single biggest challenge in the mortgage market right now remains lender service levels. Lenders are continuing to take a long time to process cases, so giving yourself as much time as possible to complete the process just makes sense.


Of course (and with apologies for the small plug), that’s where we offer something extra. We know the market inside out (and back to front), so the advice we give you will take everything into account to ensure you end up with the most appropriate mortgage recommendation. If you need us, you know where we are.

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