Mortgage borrowers can take comfort from the fact that the Bank of England has stated further rate rises are likely to be small and gradual as they plan for the future.
At noon today (2 November), the Bank of England’s Monetary Policy Committee (MPC) raised rates by a quarter of a percentage point from 0.25 per cent to 0.5 per cent – the first increase in a decade.
Lenders have already begun raising their interest rates to reflect the higher cost of borrowing – a trend that began at the end of September.
But with the MPC stating that “any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent”, borrowers will not be expecting further significant hikes.
David Hollingworth, associate director, communications at mortgage broker London and Country, said: “From a borrower’s point of view, they can take some comfort at least that further rate rises are likely to be gradual rather than to be signalling that rates are going to rocket.
“Because wage growth has been so slow those borrowers that have been affected will feel that on top of what they are feeling in terms of higher inflation on food and fuel.
“There is plenty of uncertainty over Brexit negotiations and what the outcome may be. The perception might be that rates go up so people hold off from making big purchase decisions – and moving house is the biggest you can make.
“Remortgage activity will spike. We are definitely seeing that shift to five-year over two-year continue. Borrowers are thinking further ahead and locking in for longer.”
A gradual rise in rates means borrowers locking in for five years will not face a sudden jump in repayments at the end of their term.
Mr Hollingworth said: “We have got to caveat that with ‘who knows?’, but what it does do is give them a solid foundation for planning when they come out of that fix - whether that is overpaying or getting their finances ship shape so they are in a better position to deal with whatever the market looks like in five years.”
TSB reacted to the MPC’s decision by reversing the 0.25 per cent cut made to its mortgage range over the summer, pegging rates back to where they were prior to the base rate cut in August 2016.
Accord Mortgages – the intermediary arm of the Yorkshire Building Society (YBS) – dropped its standard variable rate (SVR) by 0.35 percentage points to 4.99 per cent, aligning it with the rest of the YBS group.
Meanwhile, Coventry for intermediaries said it will apply the 0.25 per cent Bank of England base rate increase to applicable variable rate mortgage accounts from 1 December.
June Deasy, head of mortgage policy at UK Finance, said: “The majority of borrowers will be protected from any immediate effects of today’s small increase because they have a fixed rate mortgage.
"Over the last year, two-thirds of first-time buyers have opted to fix their rate for up to two years, with a further one in four opting to fix for two to five years.
“Given that variable rate lenders assess the ability of applicants to pay at much higher interest rates, most should be able to cope with any increases as they filter down.
“Rates remain very low by historical standards and borrowers remain well placed to get a good deal from the UK’s increasingly competitive mortgage market.
"Anyone with concerns about managing their mortgage should contact their lender as soon as possible to discuss the advice and support available.”
simon.allin@ft.com
