Adam French, Head of Consumer Finance at Moneyfactscompare.co.uk, said:
“Conflict across the Middle East means the Bank of England is likely to resist any temptation to cut the Base Rate for now and instead hold steady until the economic effects become clearer. What is immediately obvious is the risk of adding fuel to what may prove to be a fresh inflationary spike far outweighs any benefit a rate cut could bring.
“Lenders are already beginning to change plans and reprice products in response to the likelihood of rates remaining at their current level, or higher, for longer than had been expected. It may not be the news many prospective borrowers will want to hear, but the long-term damage caused by inflation is far worse than a delay to rate cuts. Inflation compounds quietly but relentlessly. Something that cost £100 in 2020 will cost around £128 today, for example, steadily eroding living standards and household spending power.
“Recent years have taught us that when inflation runs ahead of interest rates for prolonged periods, households pay the price. Savers in particular have already seen significant erosion in the real value of their money as rates lagged behind inflation. Previously INTEREST by Moneyfacts analysis has found the typical cash saver has been left out of pocket to the tune of 11p for every £1 saved, in real spending power terms, since 2020.
“That experience should make policymakers cautious. Base Rate policy works best when it remains firmly focused on the objective of taming inflation. Holding steady until the outlook is clearer will help avoid repeating the mistakes that have left British households still absorbing the cost of higher prices.”
Q&A: What can borrowers do if mortgage rates start rising again?
Q: If mortgage rates look like they might rise, what is the first thing borrowers should do?
The first step is to understand exactly where you stand when your current mortgage deal ends and what rate you are paying. Many borrowers only start looking when their deal is about to end, but if rates are rising it pays to plan early.
If your mortgage deal is ending within the next six months, it may be a good idea to start looking now. Many lenders allow borrowers to secure a new rate three to six months ahead of time. This can act as a safety net. If rates rise further, you have already secured a deal, but if they fall you may still be able to review your options before completing the switch.
Q: Are there ways to reduce the impact of higher mortgage rates?
There are a few practical steps borrowers can consider. Extending the mortgage term can lower monthly payments, although it means paying interest for longer overall. Some borrowers also choose to make overpayments while they can afford to, which can reduce the balance owed and the amount of interest charged in future. Although borrowers will need to check with their provider for any early redemption charges that may be involved, lenders often restrict limit overpayments to 10% of the outstanding balance per year before penalty fees may apply.
Q: Is it worth speaking to a mortgage broker?
For many borrowers, yes. A broker can help you understand the range of deals available across the market and find options that suit your circumstances. They can also help navigate lender criteria, which can vary, especially if you are self-employed or your income has changed.
Q: What is the key message for borrowers right now?
The key is preparation, not panic. Mortgage rates can move quickly, but borrowers who review their deal early, explore their options and seek advice where needed are far better placed to manage any changes.
*INTEREST by Moneyfacts analysis - https://moneyfactsgroup.co.uk/media-centre/group/1-saved-in-2020-now-worth-11-pence-less/
Adam French, Head of Consumer Finance at Moneyfactscompare.co.uk, said:
“Conflict across the Middle East means the Bank of England is likely to resist any temptation to cut the Base Rate for now and instead hold steady until the economic effects become clearer. What is immediately obvious is the risk of adding fuel to what may prove to be a fresh inflationary spike far outweighs any benefit a rate cut could bring.
“Lenders are already beginning to change plans and reprice products in response to the likelihood of rates remaining at their current level, or higher, for longer than had been expected. It may not be the news many prospective borrowers will want to hear, but the long-term damage caused by inflation is far worse than a delay to rate cuts. Inflation compounds quietly but relentlessly. Something that cost £100 in 2020 will cost around £128 today, for example, steadily eroding living standards and household spending power.
“Recent years have taught us that when inflation runs ahead of interest rates for prolonged periods, households pay the price. Savers in particular have already seen significant erosion in the real value of their money as rates lagged behind inflation. Previously INTEREST by Moneyfacts analysis has found the typical cash saver has been left out of pocket to the tune of 11p for every £1 saved, in real spending power terms, since 2020.
“That experience should make policymakers cautious. Base Rate policy works best when it remains firmly focused on the objective of taming inflation. Holding steady until the outlook is clearer will help avoid repeating the mistakes that have left British households still absorbing the cost of higher prices.”
Q&A: What can borrowers do if mortgage rates start rising again?
Q: If mortgage rates look like they might rise, what is the first thing borrowers should do?
The first step is to understand exactly where you stand when your current mortgage deal ends and what rate you are paying. Many borrowers only start looking when their deal is about to end, but if rates are rising it pays to plan early.
If your mortgage deal is ending within the next six months, it may be a good idea to start looking now. Many lenders allow borrowers to secure a new rate three to six months ahead of time. This can act as a safety net. If rates rise further, you have already secured a deal, but if they fall you may still be able to review your options before completing the switch.
Q: Are there ways to reduce the impact of higher mortgage rates?
There are a few practical steps borrowers can consider. Extending the mortgage term can lower monthly payments, although it means paying interest for longer overall. Some borrowers also choose to make overpayments while they can afford to, which can reduce the balance owed and the amount of interest charged in future. Although borrowers will need to check with their provider for any early redemption charges that may be involved, lenders often restrict limit overpayments to 10% of the outstanding balance per year before penalty fees may apply.
Q: Is it worth speaking to a mortgage broker?
For many borrowers, yes. A broker can help you understand the range of deals available across the market and find options that suit your circumstances. They can also help navigate lender criteria, which can vary, especially if you are self-employed or your income has changed.
Q: What is the key message for borrowers right now?
The key is preparation, not panic. Mortgage rates can move quickly, but borrowers who review their deal early, explore their options and seek advice where needed are far better placed to manage any changes.
*INTEREST by Moneyfacts analysis - https://moneyfactsgroup.co.uk/media-centre/group/1-saved-in-2020-now-worth-11-pence-less/
