BoE upped the base rate to 0.75% on March 17
“Consumers on a standard variable rate mortgage may want to approach a broker to assess a new deal,” according to Rachel Springall, finance expert at Moneyfacts.
She explained that this is because they could stand to make a significant saving on their mortgage repayments.
“Now that the base rate has increased back-to-back for the first time in years, the cost to borrow is expected to rise further in 2022, so speed is of the essence to lock into a rate to mitigate rising interest rates,” Springall added.
The Bank of England (BoE) raised interest rates again on March 17 with the intention to counter an expected global surge in inflation caused by rising fuel prices due to Russia’s war in Ukraine. The bank’s Monetary Policy Committee (MPC) voted to increase the bank rate by 0.25 percentage points, from 0.5% to 0.75%. The increase is the third rise since December, when the MPC elected to up rates from 0.1% to 0.25%, and then from 0.25% to 0.5% in February.
Read more: Bank of England announces interest rate hike – reaction pours in
The MPC members voted, 8 to 1, in favour of the rate hike, with just one member preferring to maintain the bank rate at 0.5%.
Springall went on to say that depending on when borrowers secured their deals, customers who are about to fall off a fixed deal and on to a revert rate may find it is three times higher than when they were fixed.
“So it is vital they consider how an increase in monthly mortgage payments would impact their finances,” she added.
Springall went on to provide an example of a rate becoming three times higher by reverting to a lender’s Standard Variable Rate (SVR).
“Halifax offered a two-year fixed rate at 1.14% in February 2020, its SVR today is 3.74%. Those coming off a two-year fixed and on to this mortgage rate will note it is over three times more,” she said.
Fixed rates have been creeping back up since the middle of last year when the total product choice reached its highest level in 16 months, with 4,512 deals on offer.
Moneyfacts had recorded availability increasing across all the individual loan-to-value (LTV) tiers in 2021. Looking back on the middle of last year, both the average overall two-year and five-year fixed rates fell in June, to 2.55% and 2.78% respectively. Reducing by 0.04% in both cases, these were the largest monthly reductions recorded for either rate since June 2020.
However, due to the surge in inflation, rising fuel prices and the increasing cost-of-living, rates have now swung back around and are on the up.
“Fixed rates are on the rise for the majority of loan-to-value tiers, but away from pricing deals, lenders could also look at affordability rules this year,” Springall said.
She explained that should drastic changes to criteria take place in 2022, it could price out would-be first-time buyers or those looking to remortgage.
“However, the Bank of England did suggest affordability rules could lesson this year, whereas HSBC were rumoured to be considering a tightening to rules in light of rising energy bills,” Springall added.
At the back end of last year, the Bank of England’s Financial Policy Committee (FPC) revealed it intends to consult on withdrawing the affordability stress test in 2022. This would mean that more people could be approved for mortgages and borrow larger loans.
In addition, in its latest financial stability report, the Financial Policy Committee said that it would maintain its loan to income (LTI) for residential mortgage recommendations. This asserts that 15% of the total number of new residential mortgages should not have a LTI ratio at or greater than 4.5. This applies to lenders whose residential mortgage lending is above £100 million per year.
The Financial Policy Committee believes that the LTI measure is an effective way to reduce the risk of a housing boom.
“Clearly, it is difficult to tell at this stage what will happen to lenders’ underwriting criteria this year, but it’s important borrowers are conscious on how this could impact them,” Springall concluded.
