Borrowers – particularly those with variables rates or who are due to remortgage – will be eagerly awaiting tomorrow’s decision by the Monetary Policy Committee of the Bank of England (BoE) when they meet to decide at what level interest rates should be set.
There have now been five rate rises since December in which time the base rate has increased from 0.1% to 1.25%. These have all made a noticeable impact on mortgage rates.
Recent data from Moneyfacts revealed not only had the variable rates increased but lenders had raised the cost of fixed-rate mortgages too. The average two-year fixed mortgage had increased by as much as 1.4% since December to sit at 3.74%.
Meanwhile mortgage broker L&C offered a similar summary – its analysis of the top ten lenders found the average two-year fixed deal climbed by 0.26% to 3.46%, while the five-year fix rose to 3.50%. The same figures in January this year were just 1.34% and 1.55% respectively.
David Hollingworth, associate director at L&C Mortgages said: “We’ve seen borrowers recognise the rise in borrowing costs with more looking to lock into a rate sooner rather than later.
“Most are now starting the process at least three months in advance and a growing proportion up to six months before their current rate is due to expire, hoping to avoid any further increase in rates and reduce payment shock.”
What are the chances of interest rates rising tomorrow?
From what experts say the question is not so much ‘will interest rates rise?’ as ‘by how much?’.
According to Daniela Hathorn, market analyst at IG, the odds were on for a 0.5% rise. She said: “The interest rate probability chart on Reuters is currently showing an 82% chance of a 0.5% hike and an 18% chance of a 0.25% hike, but I believe it’s going to be a closer call than that.”
Meanwhile, Cecilia Mourain, managing director for homebuying at Moneybox, said borrowers should expect lenders to hike rates immediately after the BoE rate rise. Indeed some lenders, she said, would have already increased rates in anticipation.
She added: “The recent succession of base rate rises can seem daunting – especially for first-time buyers – but we need to keep it in context.
“Rates declined sharply in 2020 and remain in line with the past 10-year average. Where possible, aspiring homeowners need to dissociate as much as possible from what’s happening in the very short term, and try to focus on the long term benefits of home ownership.
“There will always be periods of recessions and then periods of growth, the key is to be in it for the long term.”
