The Bank of England's monetary policy committee voted six to three to keep the base interest rate at 3.75%, but experts are warning households to brace for future rises. The Bank stressed that further escalation in the Iran war could drive inflation above 4% next year, adding to cost of living pressures.
Calm before the storm
Ed Monk, pensions and investment specialist at Fidelity International, said "this may well be the calm before the storm." He warned households should brace for borrowing costs to rise in the months ahead. Monk said bosses expected a quarter-point rise before the end of the year, with further rises likely early next year and then again within 12 months. "Were those rises to come to pass, they would take the Bank Rate to 4.5% and represent a significant squeeze on households," he added.
Impact on mortgages
The Bank of England warned that an "adverse scenario" involving a prolonged war in Iran and oil prices above $100 a barrel could drive UK inflation to a peak of 4.5% by mid-2027. Laura Suter, director of personal finance at AJ Bell, said this was "less good news for anyone planning to remortgage or buy a property," as lenders have been raising rates since mid-month. She advised shopping around for fixed deals now. "If you have a remortgage due in the next six months, check if you can agree a deal for your remortgage now," she said. "If rates fall from here, you can shop around elsewhere, but if they rise again, you’ll have locked in a competitive rate."
Ms Suter noted that buyers with small deposits face particular difficulty, as the average five-year deal for a 5% deposit has surpassed 6%, according to Moneyfactscompare.co.uk. "They face the dilemma of taking a bit longer to save up a larger deposit pot, meaning they can access cheaper mortgage rates, versus risking mortgage rates rising during that period."
Advice from experts
Alice Haine, head of personal finance at Hargreaves Lansdown, said renewed tensions in the Middle East prompted several high-street lenders to raise mortgage rates in recent days. "Anyone looking to sign up for a new mortgage or refinance an existing deal would be wise to lock in a new product quickly rather than wait for borrowing conditions to improve further. You can typically begin the remortgaging process six months before your current deal ends," she said. "Once a new product is secured, keep in close contact with your broker as they can often switch you to a better rate right up until two weeks before the term starts, if conditions improve."
