Today the Bank of England has raised interest rates by 0.25% to 1%, the highest in 13 years. And what next as inflation set for 40 year high.
‘Inflation is set to peak at an eye-watering 10% this year – a level we haven’t seen since 1982. It means there’s a good chance we haven’t seen the end of rate rises. Already, despite maintaining a slow and steady pace of fractional rate rises, the combined impact of four rises in five months is catching up with us.
The Bank of England predicts the spending power of our income will fall 1.75% during the year, leaving us all struggling, and life is going to get even harder for borrowers. Those with large variable-rate mortgages could find their monthly payments have risen by £100 or more since December. Fixed-rate borrowers are shielded from the impact of the rises for now, but when they come to remortgage, it will hit them in one, knock-out blow. Meanwhile, credit card costs and new loans will continue to creep up, so anyone borrowing to stay on top of rising prices will pay an even higher price for it.
Banks will be falling over themselves to pass on the rise to variable rate mortgage customers before the ink dries on the Bank of England announcement. In fact, Halifax fell over its own shoelaces and accidentally announced its rise before the Bank of England’s decision.
Three quarters of mortgage holders are protected by a fixed rate mortgage, but while they’ll be reaping the benefits during the fixed period, it means they’ll feel the impact in one fell swoop when their mortgage expires. The Bank’s efforts to bring in rates gradually and smoothly will be no use to anyone who remortgages and sees their rates jump overnight. 1.5 million of these fixed rates are set to expire this year.
If you have six months or less left on your current mortgage deal, you can apply for a remortgage rate today, and lock in a deal in case rates rise again. If you have longer until your fix comes to an end, there’s time to plan for how you’ll cover the extra costs. Ideally, you’ll be able to track down costs to cut elsewhere in your budget, to free up more cash for your mortgage. You could even do that now and overpay on your mortgage, to limit the impact of future rate rises. If you’ve cut every cost possible, when the time comes you may be able to extend your mortgage, so your monthly payments are still manageable. However, this will mean paying more interest over a longer period, so it comes at a cost.
We can expect to see more of the same in the coming months, as the steady drip-drip of gradual rate rises builds to a wave of higher debt costs.
The Bank forecast for inflation makes grim reading. It’s now predicting it will hit 9% in the summer and then rise to over 10% at its peak at the end of this year – driven by rising energy bills. This is going to take a terrible toll on millions of people, who face an impossible challenge in meeting these rising costs, and the Bank expects wages to fall well behind, losing 1.75% of their spending power this year. We haven’t seen inflation at 10% in 40 years, so we’re facing the biggest cost of living crisis in a generation’, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
- Rental platform Canopy recently conducted research into the housing market and their research revealed that one in ten UK private renters have been unsuccessful when applying for a mortgage, even though 80% of renters have never even missed a rental payment, with average rents now at £753 a month.