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Bank of England’s Hefty Interest Rate Hike: The Implications for Mortgages, Savings, and Landlords

The Bank of England has delivered an unexpected blow to the economy with a substantial 0.5% increase in interest rates, pushing them up to 5%. The sweeping consequences of this decision will have a notable impact on mortgages, savings, and landlords.

Sarah Coles, the head of personal finance at Hargreaves Lansdown, warns that this hefty interest rate rise is a distressing blow for numerous mortgage holders. Tracker rates will inevitably increase with every Bank of England hike and a majority of Standard Variable Rates (SVRs) are likely to follow suit. The current high rates have proved particularly damaging for those who recently switched onto a variable rate mortgage in anticipation that fixed rates would fall. As the market anticipates further hikes due to deeply entrenched inflation, increased rate expectations are being factored into fixed rate mortgages. This hike is a stark nightmare for individuals considering a remortgage.

Nevertheless, there is some hope. The market’s anticipation of further hikes may be an overestimation. The shock of this sizeable increase might be enough to curb inflation without needing further hikes. Moreover, new guidelines from the Financial Conduct Authority (FCA) suggest lenders might offer more flexibility for those facing a mortgage crisis.

In terms of savings, this sudden rise in interest rates might prove more beneficial. The higher-than-anticipated hike may result in further rate increases. Some strong rates have already emerged ahead of the announcement, with one-year fixed rates reaching up to 5.7% and longer-term fixed rate bonds up to 5.67%.

On the other hand, Gary Scott, a Partner at law firm Spector Constant & Williams, believes the increase is bad news for small entrepreneurial landlords. Coupled with inflation and the elimination of mortgage interest as a tax-deductible expense, being a landlord is becoming less of an attractive investment. He insists that the government should invest in court systems to make tenant eviction more efficient and faster. He anticipates a shortage of supply driving up rents if landlords decide to exit the market due to this added burden.