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Brokers dub BoE rate rise 'naive’ as mortgage payments climb

Brokers dub BoE rate rise 'naive’ as mortgage payments climb
Photographer: Jason Alden/Bloomberg

Brokers have called the Bank of England’s latest base rate rise “naive” as consumers face the “double whammy” of lenders increasing their mortgage payments and rising bills.

Today (March 18), a handful of lenders withdrew certain variable rate mortgages and increased variable rate trackers by 0.25 per cent, following a 0.25 percentage point base rate rise to 0.75 per cent yesterday (March 17).

Yorkshire Building Society has gone as far as to withdraw all its variable rate tracker mortgages “with immediate effect”, according to Moneyfacts.

Meanwhile lenders such as HSBC and First Direct have increased their variable tracker rates in line with the base rate rise.

Many lenders had already hiked their interest rates ahead of the central bank announcement. “Lenders have been making changes for quite some time, especially since the Bank of England signalled rates would come up,” Aaron Strutt, director at Trinity Financial, told FTAdviser.

He added that more base rate changes seem to be on the way, due to the fact many fixed-rate mortgages are now cheaper than their swap rate equivalents.

“It’s heading towards 2 per cent being the benchmark for mortgage rates, though we’re not there just yet,” said Strutt.

In November, prior to the central bank’s first base rate rise since the pandemic, the mortgage market was seeing interest rates fall to historic lows meaning mortgage arrears fell to their lowest level since 2007.

Scott Gallacher, a chartered financial planner at Leicestershire-based Rowley Turton, said increasing interest rates to control inflation is “the wrong policy at the wrong time”. 

The monetary policy committee said yesterday it expects inflation to increase to about 8 per cent in the second quarter of the year, with the possibility of a higher rise at some point in 2022.

“Current UK inflation is primarily being driven by external international factors such as rising gas and oil prices and Chinese supply issues due to Covid-19, so trying to dampen domestic demand, and therefore inflation, by increasing interest rates seems naive at best,” said Gallacher.

“The cost of living crisis will more than dampen UK consumer demand. And UK consumers don't need a double whammy of rising mortgage payments and rising bills."

Rate rise 'adds £316.56' to annual mortgage payments

Dominik Lipnicki, director of Your Mortgage Decisions agreed the Bank of England raising the base rate “will do very little to fix the problem [of inflation]”. 

With an energy price cap rise of 54 per cent - with further rises still to come - coupled with the upcoming National Insurance hike of 1.25 percentage points set to raise an extra £13bn, many people “will struggle and have to choose between heating and eating”, he said.

By increasing their mortgage payments, Lipnicki said this financial strain will only become “more severe”.