An emergency interest rate rise has been predicted in response to the pound plummeting to a record low this morning.
City traders expect the Bank of England (BoE) decision makers to meet before their scheduled meeting in November to raise the base rate again, according to a report in the Financial Times (FT).
The value of the pound fell dramatically this morning in response to Chancellor Kwasi Kwarteng’s mini-budget on Friday in which he announced the biggest tax cuts in 50 years.
Although the BoE has declined to comment on today’s speculation of an emergency rate rise – the rumour itself could have an impact on mortgage rates, which are already climbing in response to last week’s interest rate hike.
In the last year, there have been seven consecutive rate rises, which have seen the interest rate soar from its low of 0.1% in early December 2021 to reach 2.25% on Thursday as the Bank of England seeks ways to bring down record high inflation.
The next decision on interest rates was due in early November, but an additional emergency rise prior to this would be another blow for borrowers.
Joshua Raymond, director at financial brokerage XTB explained: “The sharp [pound] declines are quickly necessitating intervention by the Bank of England to announce a rate hike that would surprise the market.
“It could well be the case that to restore some kind of credibility, we might need to see a 2% hike by the BoE immediately. But that sort of intervention could pit the central bank in direct hostility with the treasury, so even if we do see a kind of intervention, it won’t be the end of uncertainty.”
What would an emergency interest rate rise mean for borrowers?
Following each interest rate rise, borrowers on tracker mortgages will see their rate automatically increase. So, were the BoE to make a surprise rate rise before November, tracker mortgage customers would see an instant increase.
For those on standard variable rate (SVR) mortgages, the rate may well be passed on by their bank – customers on these deals are being urged to switch as SVRs tend to be the most expensive.
Those on fixed-rates will be sheltered until they need to remortgage but when their deal ends they will be exposed to rising rates.
So, for anyone looking for a mortgage to fund a home move, new property or to remortgage, there is now a risk prices may rise again before November.
Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages said: “Many homeowners are already finding themselves just being able to tread water with the recent rate rises.
“However, any further rises could see hundreds of thousands of people being dragged into the deep. We’re yet to see lenders make a move and increase their rates even further but if the Pound continues to slump the chances of intervention are looking more and more likely.
“Mortgage holders with a mortgage due for renewal in the next six months can’t afford to bury their heads in the sand and, if they haven’t already, need to get their foot on the pedal to get that next mortgage secured.”
Mortgage up for renewal? Speak to your broker
If your mortgage deal is due to end in the next six months, it’s a good idea to speak to a broker about your options. This is because there are lenders which will allow you to sign up for a new deal six months in advance and therefore enable you to lock into current rates – before they increase.
Anil Mistry, director at Leicester-based RNR Mortgage Solutions, said: “As of Monday morning, there were no updates in my inbox from lenders about their rates changing. However, this further highlights the urgency from all brokers where a client’s deal is ending in the next six months, to speak to their clients as soon as possible to have their mortgage and circumstances reviewed.
“Therefore, a new rate can be secured prior to any further increases of the Bank of England and in turn the lenders increasing their rates.”
