Mortgage borrowers should not assume that another Bank of England base rate hold will prevent fixed rates rising further, L&C Mortgages has warned.
The Monetary Policy Committee is widely expected to leave the base rate unchanged at 3.75% later today but attention will focus on whether more members vote for an increase.
Two MPC members backed raising the rate to 4% at June’s meeting. Any additional support for an increase could signal a more challenging outlook for borrowers and the housing market.
Several lenders have already repriced products upwards as geopolitical uncertainty and renewed inflation concerns push up wholesale funding costs.
CLIMBING FIXED RATES
David Hollingworth (main picture), Associate Director at L&C Mortgages, says borrowers approaching the end of fixed deals should consider securing a new product now.
Fixed mortgage pricing is primarily influenced by swap rates and expectations for future interest rates, rather than moving directly in response to the current base rate.
He says: “A hold is still welcome, but market expectations will need to ease back before we can hope for a return to lenders cutting rates.
“Securing a deal and then reviewing rates again before completing will avoid suffering further hikes but still allows a switch to a cheaper product before completion if rates improve.”
Higher mortgage costs could also affect buyers’ affordability calculations and place additional pressure on property chains.
TRACKERS FACE RISK
Tracker borrowers would see no immediate change if the base rate remains at 3.75% because their interest rate is directly linked to the Bank’s decision.
However, a quarter-point increase would add almost £28 to the monthly repayment on a £200,000 mortgage over 25 years for someone paying 0.29 percentage points above base rate.
Borrowers considering switching from a tracker to a fixed deal would currently face higher initial costs following recent repricing.
L&C says those paying lenders’ standard variable rates should review their options urgently, regardless of the MPC’s decision.
A borrower with a £200,000 repayment mortgage over 25 years on an SVR of 7.24% would pay approximately £1,444 a month.
Switching to a lower-priced product could reduce that to around £1,060, representing a saving of £384 a month or more than £4,600 annually.
Borrowers unwilling to fix immediately could consider a tracker without early repayment charges, cutting their current costs while retaining the option to move to a fixed product later.
