Conceding that price rises were “much more persistent” than previously predicted, Bank of England Governor, Andrew Bailey, has said homeowners are likely going to face at least three more years of mortgage pain.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Bailey said the decision to raise interest rates yet again to 5% was meant to combat inflation and that they were acting in the best interest of the economy. This was done despite the fact that the economy is performing better than expected because inflation is still too high and the Bank feels something must be done to deal with it.
Seven members of the nine-member Monetary Policy Committee backed the decision amidst warnings that the markets are betting on interest rates averaging 5.5% over the next three years. With interest rates at this level, thousands of pounds will be added to families trying to make mortgage payments each month. This decision could affect the savings of 1.2 million families this year, according to economic think tank, Niser, and will leave 7.8 million families without a financial safety net.
The newest rise is the thirteenth consecutive increase, which takes interest rates to their highest level since 2008, after a series of unexpectedly high inflation numbers that have caused chaos in bond and mortgage markets.
Unfortunately, this rise will immediately cause mortgage pain for more than 600,000 borrowers on tracker rates, with an added average cost of £285 a year according to UK Finance.
Some financial experts are predicting further rate raises and that by the end of the year, interest rates will hit 6%, all in an effort to stave off inflation. If this rate hike happens, it would take interest rates to their highest since the end of 2007.
Furthermore, swap rates, which are used by high street lenders to price fixed-rate mortgage deals, also increased after the announcement, leading many to believe that borrowing costs will remain high as more people come to the end of their mortgage terms.
But according to Bailey if rates don’t increase now, it could be worse later, and the Bank is committed to curb inflation.
If you’re concerned about the state of the base rate and how it will affect your monthly mortgage repayments, get in contact with the experts at Dental & Medical Financial Services today.