The Bank of England’s decision to increase the interest rate to 0.25% will see fixed rate mortgages go up in price.
However, the changes will have little impact on mortgage borrowers in the short-term, according to David Whittaker (pictured), CEO of specialist buy-to-let lender Keystone Property Finance.
He said: “The Bank of England has been walking a tightrope for months, trying to simultaneously encourage the economic recovery while keeping a watchful eye on inflation.
“However, with price rises hitting a 10-year high this month, clearly the Bank’s rate-setting Monetary Policy Committee felt it had no choice but to act in order to avoid inflation becoming imbedded.
“While a December rate rise might feel as though it goes against the spirit of Christmas, we must remember that today’s increase will have little immediate effect on borrowers.
“Yes, those on tracker rates will see their monthly repayments rise a little, but the vast majority of borrowers on fixed-rate mortgages will feel no effect for the time being.
“Longer-term, however, the Bank’s decision to increase rates might have a knock-on effect for gilts and therefore swap rates, which could result fixed-rate mortgages becoming more expensive as we move cautiously into 2022.”
Paul Broadhead, head of mortgage and housing policy at the BSA, concluded: “A rate increase is an important psychological moment as it is the first time that the Bank Rate has risen since August 2018. But right now we have just moved from the lowest Bank Rate ever, to the second lowest ever.
“Given the rising costs of energy and food and the tax hikes coming next year, it is helpful that eight in ten mortgage borrowers are on a fixed rate. These people will continue to pay the same each month until their fixed rate period ends. The 20% on variable rate mortgages are likely to see their payments rise, but I expect the increase to be modest, tempered by the highly competitive mortgage market which is still being driven by relatively high demand and a sparse supply of homes.
“Lenders are sensitive to the rising number of people facing a squeezed household budget and the advice to anyone worried about their ability to pay their mortgage is to get in touch with their lender early. Lenders will do everything possible to help.”
