Two weeks ago saw the Bank of England’s anticipated interest rate hike – a shift from 0.25 per cent to 0.5 per cent – take place in a bid to calm inflation, consequently rattling the mortgage market with some rates increasing as a result.
For Alan Chan, director of IFS Wealth & Pensions, the concern at this stage is not too great from a business perspective.
He says that many lenders have already been quick off the mark and have raised mortgage rates to reflect this.
“Clearly, the cost of borrowing is higher now, but it is all relative because historically speaking interest rates are still very, very low.
“I don’t think it will have a big impact at this stage as interest rates are still very low, so the demand for mortgages to purchase properties will still be high; but we may see more clients keen to fix their rates for longer because of the recent rate rises by the BoE, so there could be less renewal business for mortgage brokers.”
Scott Gallacher, chartered financial planner at Rowley Turton, acknowledges that mortgage rates are “almost certainly going to rise”.
He adds: “However, it’s worth bearing in mind that interest rates are still very low and the rise in percentage terms is relatively modest. I can’t see that it will have a big impact because rates are still low.”
Meanwhile Brian Murphy, head of lending at the Mortgage Advice Bureau, notes that 80 per cent of mortgage borrowers in the UK are currently on fixed mortgages and will not be affected, but the impacts on variable mortgage borrowers are significant.
“For those whose mortgage tracks the BoE base rate, the recent increases will be passed on to borrowers in full and for those borrowers whose mortgage is the lender's variable revert rate or standard variable rate, it is the lender's decision generally whether to pass on in full any bank rate increase or decrease as they occur, although typically the increase or decrease is passed on in full.”
The wider impact on the cost of living is yet to be known in full, but is of concern to many at this stage.
Cost of living
Chan notes that: “Mortgage repayments will be higher, which means less disposable income to spend on other areas of life and less to save each month.”
For Gallacher, the interest rate increase on its own is not a major factor but with rising energy prices and national insurance “the picture is not so rosy”.
He adds: “These will combine to make life difficult for many people and some will have to make cutbacks if they can.”
Hinesh Patel, portfolio manager at Quilter Investors, says the hike from the BoE was “very much expected and needed”, although observes that action has been taken too late.
“The bad news for consumers is inflation is now likely to hit 7 per cent and will remain elevated for at least the rest of this year."
