What will the implications be for borrowers and savers following today’s Bank of England interest rate decision to hike base rate to 0.5% in response to rising inflation? Brokers and IFAs tell us their thoughts.
Peter Lowman, Chief Investment Officer at London-based Investment Quorum: “The Bank of England has to deal with the ultimate double-edged sword. On the one hand, it needs to address the current inflation rate and raise rates carefully, on the other it must respect the fact that poorer households are already suffering from the current cost of living, with significant price rises across energy, food, clothes and other household necessities. The Bank of England really is between a rock and a hard place and will have its work cut out in 2022.”
Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton: “I am seriously concerned that the Bank of England is not looking at the wider picture. The economic theory is that, with high inflation, you increase interest rates to reduce consumer spending and control inflation. However, with soaring energy prices and the cost of living crisis, does anyone really think we need to dampen consumer spending? Higher energy bills will mean that many people will have to make cut backs in other areas anyway.”
Andrew Montlake, Managing Director of the UK-wide mortgage broker, Coreco: “Given the runaway inflation figures, it was no surprise the Bank of England felt the need to increase Bank Base rate once more. While it will not have too much effect on the majority of mortgage borrowers who have long since run to the sanctuary of fixed rates, this rate rise will continue to drive prospective buyers and those looking to remortgage to act sooner rather than later as they flock to lock into some of the lowest rates still available. Added to the increase in energy bills we are all facing, it may be that people’s borrowing power starts to wane slightly as lenders take into account these extra costs. That said, we are still in a low interest rate environment with lenders eager to lend, and this competitive pressure will ensure that the mortgage market remains very much open for business and affordable to the majority of borrowers.”
Mark Robinson, Managing Director of Southampton-based Albion Forest Mortgages: “Despite very few lenders lowering their interest rates when the base rate went down in 2020, lots will likely increase interest rates with this change. The result will mean higher monthly payments for those on standard variable rates. It’s important to remember, however, that while the base rate is rising, it is still exceptionally low. There are still very competitive mortgage rates out there.”
Scott Taylor-Barr of Shropshire-based Carl Summers Financial Services: “Though rates have risen, we may find that some lenders have money left at cheaper rates and so can hold rates down for longer than some of their competitors, but these funds tend to be exhausted pretty quickly. With inflation remaining stubbornly high, I think we can expect mortgage interest rates to be creeping up every few months this year.”
Wesley Davidson, founder of broker Fox Davidson: “This latest interest rate increase will pile on more misery for homeowners, or at least those who are on standard variable rates, as their mortgage costs increase. Coupled with the proposed national insurance increase and forthcoming energy price rises, there will be a real squeeze on income during 2022.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “People locked into a fixed rate will be protected from any rate rises but those on base rate trackers or, worse still, on a lender’s standard variable rate will likely see their monthly payments rise. Once again I find myself repeating the same old tune: the best time to remortgage was six months ago and the second-best time is now. ”