HOMEOWNERS are being warning that mortgage costs could rise because of Bank of England “mistakes”, according to analysts.
Interest rates are currently at their highest level since 2008, putting more pressure on mortgage borrowers.
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The current rate stands of 4% following a hike by the Bank of England (BoE) early last month.
Hiking interest rates is meant to encourage households to save rather than spend, which forces inflation down – but it it also means your mortgage rate could go up.
Lenders also use the BoE base rate to work out the rate that it then offers to mortgage customers.
Analysts at the Bank of America claimed that swap rates – which lenders use to make pricing decisions – are likely to “move higher” in the future, according to The Telegraph.
Alastair Ryan, an analyst at the Wall Street bank, said in an interview that interest rates may need to go up because the BoE “messed up” on inflation and “remains behind the curve on interest rate rises”.
The central bank was initially criticised for not acting quickly enough to increase interest rates to control soaring inflation, which currently stands at 10.1%.
Nicholas Mendes, from mortgage advisors John Charcol, said: “Inflation increased to record highs, the bank of England in their attempt to bring down to their target of 2% were slow in their approach in raising the bank of England base rate.
“It is now expected to peak at 4.25%, and not expected to decrease until 2024.”
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It comes after the Governor of the Bank of England warned that further interest rate rises may be needed to keep up with inflation.
The BoE declined to comment when approached by The Sun.
The next meeting of BoE’s Monetary Policy Committee (MPC) is set to take place on March 23.
Interest rates stood at 0.1% in November 2021 and have since been hiked ten times to get to their current position.
The single biggest hike came in November 2022, when the rate rose from 2.25% to 3%.
It came after the markets were thrown into chaos following the disastrous mini-budget, leaving lenders to pull products.
Mortgage brokers said they haven’t seen anything like it since the credit crunch of 2008.
Mortgage expert Nicholas, said: “Over the last decade homeowners have been overindulged over a long period of low fixed rates, meaning the hardest to decision during a mortgage application was to choose either a two or a fix-year fixed.
“2022 was a complete reversal to previous year and marked the beginning to the end of rate remaining at records lows.”
But following the BoE’s most recent hike, not all banks raised their mortgage rates.
This is because a lot of the rate rises were already priced in, based on previous predictions.
Fixed rate mortgage rates have already started coming down since last year when markets feared interest rates would climb above 6%.
When the BoE increases its base rate, banks usually increase how much they charge on loans and mortgage repayments.
An extra 356,000 mortgage borrowers could face payment difficulties by the end of June 2024, according to recent figures.
Plus, those rolling off a fixed-rate deal could end up paying an additional £340 a month on average
Andrew Hagger, personal finance expert from Moneycomms.co.uk said: “With more than a million mortgage borrowers due to renew their fixed rate deals this year, these stubbornly high interest rates are going to cause financial misery for those shopping around for a new fixed rate home loan”.
How could a rise in mortgage rates affect me?
If the BoE chooses to increase interest rates again later this month, your mortgage rates could go up, but it will depend on the type of loan you have.
Those on a fixed-rate mortgage won’t be impacted until they come to the end of their fixed period and have to sign another deal.
Mortgage expert Nicholas said: “For those coming into their last six months of the fixed rate expiring, locking in a deal now will mean you can hedge your bets if increase rates increase you’ve tied into a deal.
“If rates decrease between now and when your current deal expires you still have the option to move to a new rate with the existing lender or move to a new lender.”
Other mortgages, such as tracker or standard variable rate (SVR) mortgages, could be impacted straight away.
Tracker mortgages are directly linked to the BoE base rate – which means you will see an immediate impact.
Homeowners on standard variable rate mortgages won’t see their repayments go up straight away, but they will likely increase shortly after a hike.
Your bank should tell you about any change to your SVR before it goes up.
Nicholas added: “The honest answer is no one can accurately predict where rates will be in the future and there are still many factors that can change in a short period of time.
“When it comes to a mortgage application whether to choose a tracker or a fixed rate will come down to circumstances and whether you need stability in your payments are happy to take a risk with a flexible product which can increase or reduce your mortgage payments.”
How can I get the best mortgage deal?
Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE rise., either when shopping for a new fixed deal or reverting to the standard variable rate (SVR).
But if you’re nearing the end of a fixed deal soon it’s worth looking now. You can lock in current deals sometimes up to six months before your current deal ends.
Fixed rates have historically been cheaper than SVRs, but that may not be the case now, so its worth comparing the costs, and how long you want to be locked in for.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also got to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on you mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it on to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement
You can use a mortgage calculator to see how much you could borrow.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
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