The Bank of England Base Rate currently remains at a record low of 0.1 percent. However, with coronavirus lockdown restrictions easing and recent surges in the UK rate of inflation, there’s been speculation about whether the Bank of England’s Monetary Policy Committee (MPC) will increase the Bank Rate soon.
Matthew Ryan, CFA, Senior Market Analyst at global financial services firm Ebury, said that the Bank would wait until its August meeting before providing a clearer indication of future policy.
However, he suggested interest rate rises could come as soon as the third quarter of 2022.
Speaking following the latest Bank Rate decision by the MPC, he said the central bank “sounded rather unflustered by the recent upside surprises in UK inflation”.
“Policymakers now expect price growth to rise above three percent this year from the previous 2.5 percent projection, although they once again insisted that the spike will be temporary and appear in no rush to begin signalling a normalisation in monetary policy is on the cards.”
He added: “We think that the bank is waiting until its August meeting before it provides a clearer indication as to the future policy path.
“At this point, the bank should have a much better idea of both the nature of the inflation spike and the impact of the lockdown unwinding on economic activity.
“We remain of the opinion that the Bank of England will start raising rates prior to both the Federal Reserve and the European Central Bank, perhaps as soon as the third quarter of 2022.”
So, what would a potential rise in interest rates mean for those with a mortgage?
It’s something which Nick Morrey, Product Technical Manager at John Charcoal, recently spoke to Express.co.uk about.
He explained there are a number of things people who want to secure the “lowest rate possible” should do.
This begins with defining what their requirement for the “lowest rate” actually is – for instance whether it’s the lowest rate or the product with the lowest cost over the term of the fixed rate.
“Lenders give with one hand and take away with the other – so a low rate might have a high fee but a higher rate may have no fee at all,” Mr Morrey said.
“As a rule of thumb, the larger the mortgage the more important the rate becomes and the less important the fee becomes.”
Furthermore, a key consideration consumers should make is the length of the deal they’re looking for, Mr Morrey said.
“Decide how long you want a deal (often fixed rates but trackers and discounted rates too) to last for,” he explained.
“Two year deals are cheaper than three year deals which are cheaper than five year deals.
“But if you go for a two year deal you will have to take another product in two years time and again after four years with possible fees each time – is it worth it?”
Deciding whether to use a broker is something else to think about.
“Brokers will discuss with you what your priorities are and can easily work out which one product from the thousands that are out there best meets your needs,” he said.
“If you have a current deal that ends in the next six months consider doing the application now.
“If rates go up then you will be glad you secured one before they did.
“If they go down you can sometimes switch product (before completion) with the same lender you are using or, if you have time, stop that application and start another. But in a way you cannot lose.
“This is because mortgage offers are usually valid for up to six months so you can prepare well in advance for a remortgage and reduce any stress levels by giving time for everything to be ready for the end of your current deal.”
Those concerned about their credit history may want to look into their options.
Mr Morrey said: “If your credit history isn’t great (maybe pandemic related) then talk to a broker about your options.
“It might be staying with your current lender and taking a new deal is better although borrowing extra funds with that lender whilst having some adverse credit history may be off the table you might be able to get a second charge loan for that and then consolidate it into your main mortgage when your credit score allows.”