Rate may drop due to interest rise being lower than feared
Brokers have continued to react to the increase of the base rate by the Bank of England (BoE) – with one suggesting that mortgage rates may even reduce.
The BoE upped the base rate by 0.75%, which represented the largest increase since 1989 and pushed interest rates to 3%. While this increase was significant, it was expected by many in the industry with inflation continuing to rise.
“As absurd as it sounds, you might find that more mortgage rates will reduce as the base rate has not increased as high as some feared,” said Ashley Thomas, director of high value, mortgage broker, Magni Finance in London. He added that mortgage lenders would already have priced in the increase over the past month.
Thomas (pictured) believed that the appointment of Rishi Sunak as Prime Minister had a significant and positive impact on the mortgage market and therefore homeowners.
Read more: Bank of England hikes interest rate again
Paul Holland, mortgage broker at Henchurch Lane Financial Services, agreed that recent fixed rates had already factored in this latest hike, so he believed costs would not move up.
“They tend to be based on swap rates, which if anything, are now coming down as some confidence is restored to the market, following the U-turn on everything Kwasi Kwarteng and Liz Truss did,” he said.
Tracker and variable rates would of course go up as a result of Thursday's rate rise, but Holland explained there was such a huge gap between the bank rate and fixed rates that there should not be any further hikes in the short term.
“Anyone exiting their mortgage now and in the foreseeable will be having a shock in comparison to the rates they are used to and we are currently dealing with clients whose mortgages are going up by £500-£1000 per month,” he said.
As a result, Holland suggested, this would make the energy crisis seem like a drop in the ocean. There would be a lot of people defaulting on their mortgages or selling their houses in the medium term. “However, savers on the other hand should of course start to benefit from this,” he added.
Meanwhile, Justin Moy, founder at EHF Mortgages said: "This rate rise was not unexpected and will bring us in line with similar economies around the world,”
Moy believed that what the market now needed was to see some stability among fixed rate mortgage products, given the minor reductions in the last week or so.
He said that a bigger problem would be the affordability assessments and stress testing on both residential and buy-to-let mortgages, as the amount someone could borrow would inevitably reduce again.
Meanwhile, Elliott Benson, mortgage broker at Sett Mortgages, said that while this rise was expected by the industry, it would still come as a shock to many homeowners.
He explained that the days of ultra-cheap mortgage finance were now over, and said never had independent mortgage advice been more important.
“I would advise anyone who is still thinking of buying or remortgaging to keep calm, seek professional advice and take the right decision for their own circumstances,” Benson said.
Read more: What are the latest mortgage lending numbers?
Austyn Johnson, founder at Mortgages for Actors agreed with Benson that while the base rate was still not that high compared to 15 to 20 years ago, such a sharp and sudden hike for those who have been fixed very low for so long would leave them reeling at the change.
Johnson explained that borrowers would generally be affected. But he believed those, whose fixed rate ended in the next few months, would be worst hit.
“Some people could see their monthly payment double. People on variable rates, especially portfolio landlords, will need to get the ball rolling ASAP as they will have increasing costs across their whole portfolio,” he added.
As a result, Johnson said sellers would be wary of moving, purchasers would be wary of buying and rents would rise to make up for this.
“Property prices will need to come down to cope with the change if we want to keep this market moving smoothly,” he said.
