Habito comments on the BoE monetary policy committee interest rate rise
Martijn van der Heijden, Chief Financial Officer at award-winning mortgage broker, lender and digital home-buying service Habito, comments on the BoE monetary policy committee interest rate rise.
On the decision:
“Despite the uncertainty around the economic impact of the Omicron variant, with inflation now at a 10-year high of 5.1%, the Bank of England has finally decided to act.
“Yesterday’s inflation figure of 5.1% was where the BoE had predicted inflation would be next Spring. The committee was left with little choice but to raise rates now to try and avert a bleak mid-winter for the UK economy.
“However, today’s vote to increase the base rate will have a real impact on many homeowners’ future finances.
“Even though a base rate increase to 0.25% sounds small, a quarter of UK mortgage holders who are on a variable, tracker or standard variable rate, will see this impacted in their monthly statements going forward. This hike could see their repayments go up by potentially hundreds of pounds a year.
“The key take-out from today is that this could be the first hike of several. The MPC hints at this in its statement by warning that “tightening of monetary policy over the forecast period is likely to be necessary”. Economists had already forecast a second rise to 0.5% in Spring 2022, hitting 1% by the end of 2022. The Office of Budget Responsibility (OBR) has predicted that rates could reach 3.5% by 2023. This means we may be seeing the beginning of the end of the era of record-low interest rates.
“If so, a rising base rate environment is something many homeowners have never experienced. Anyone who’s bought a home in the last 12 years has only ever had a mortgage during a time when base rates were 1% or below.
“Given that 74% of UK homeowners are on a fixed rate deal, any discomfort from today’s base rate rise will be felt in the future, when their current deal ends. However, the concern is that if the Bank does need to raise rates several times over the next 12-24 months, when homeowners do come to remortgage, prices could be much higher than where they are now.
“Of course, this rate hike is also coming as household finances look likely to be squeezed by rising energy prices and food prices in the next few months, and increased National Insurance Payments next year. The OBR has already said that this effectively means that real household incomes will be held at 2019 levels for another two years.”
On what we’re already seeing in the market:
“Anticipating today’s outcome, lenders had started increasing their rates since November. We’re seeing a bumping-up of rates for both purchases and remortgages. As such, we’re seeing customers opting for 5-year fixed-rate deals over 2-year fixes and 10-year plus fixes are also surging in popularity.
“The good news is that the mortgage market has also changed hugely since we were last in a rising inflation and rising interest rate environment. We’ve seen much more mortgage innovation in the creation of real longer-term fixes or whole of term products precisely to protect consumers from interest rate risk.
“In March, we launched Habito One – where homeowners can fix for 10, 15, 20, 25-year fixed, up to 40 years – with no exit fees whatsoever. With the interest rate guaranteed for your whole mortgage, you can lock in a rate now – and know that your payments are guaranteed for decades. With no early repayment charges homeowners have complete freedom to leave at any time, switch deals, make unlimited overpayments, move home, or pay off their mortgage early without any penalties or hidden fees.”
On what homeowners should do:
“For homeowners with deals expiring in the next 6 months, it could make sense to fix their mortgage costs and protect themselves against this further household bills price volatility.
“But for anyone with deals expiring mid-2022 and beyond, there is an expensive watch out; Early Repayment Charges. These are set by your lender and can be thousands of pounds. Many homeowners are now having to weigh-up whether paying an exit fee to remortgage early is financially worth it. If you’re unsure, a mortgage broker will be able to help show you what a new deal would look like.
“Longer-term fixes are typically more expensive because you’re protecting yourself from uncertainty and further interest rises for potentially decades to come. But, be sure to look for a deal, with small or no exit fees, like Habito One – in case you want to leave the mortgage before the full fixed term is up – then there’s no penalty for doing so.”
Kindly shared by Habito
Main photo courtesy of Pixabay
