Bank of England HOLDS interest rates at 0.1%: Relief for homeowners as base rate is kept at historic low… after Natwest, HSBC, TSB and Nationwide AXED best mortgage deals or hiked prices anticipating rise
- Nationwide withdrew all tracker mortgages and increased the cost of other home loans by up to 0.35 points
- HSBC will hike rates on dozens of fixed deals from today, while NatWest and TSB also announced rate rises
- Can you fix to beat potential rate rises? Check rates and compare the best mortgages you could apply for
Homeowners on variable rate mortgages breathed a sigh of relief today after the Bank of England chose to keep interest rates at the current record low of 0.1 per cent following a ‘knife edge’ decision.
The decision – said to have been the most unpredictable in years – comes after mortgage lenders began pulling their cheapest deals last week in anticipation of a rise, with a flurry of further rate increases announced yesterday.
Britain’s biggest building society, Nationwide, withdrew all of its tracker mortgages that follow changes to the Bank of England base rate, and increased the cost of other home loans by up to 0.35 percentage points.
HSBC revealed plans to hike rates on dozens of fixed deals from today. The bank previously offered the cheapest two-year fixed rate on the market at 0.99 per cent for borrowers with a 40 per cent deposit. NatWest and TSB also announced rate hikes on a host of loans by up to 0.15 and 0.3 percentage points respectively.
Expectations of an imminent rate hike were stoked after some policymakers on the Bank’s nine-member rate-setting panel voiced concerns about the rise in consumer prices and hope to keep a lid on the peak in inflation.
Today, the Monetary Policy Committee voted seven to two in favour of holding rates at 0.1 per cent. Committee members Michael Saunders and Dave Ramsden had voted in favour raising interest rates to 0.25 per cent.
The Bank will also keep up its £895billion quantitative easing programme, and cut its economic growth forecast to 7 per cent in 2021 and 5 per cent in 2022, from the 7.25 per cent and 6 per cent predicted respectively in August.
It comes after the headline measure of consumer price inflation in Britain dipped slightly in September to 3.1 per cent, but remains more than a percentage point above the Bank’s Government-mandated target of 2 per cent.
In the past, the rate-setting panel has sometimes held off from raising interest rates if it judged the increase in prices to be tied to temporary phenomena. Some of the current inflation increase is because of temporary factors, including comparing prices to those from a year ago when they had slumped in the early months of the pandemic.
However, there are signs that the rise in inflation is becoming embedded in the British economy through higher wage increases. The Monetary Policy Committee will hold its next meeting just before Christmas.
It comes two days after the US Federal Reserve left interest rates unchanged as it announced it would start winding down the stimulus programme it put in place during the pandemic to keep inflation under control.
According to the OBR, rising inflation may prompt the Bank of England to put up interest rates from the current 0.1 per cent to 0.75 per cent by the end of 2023. The forecasters said this would have a massive knock on effect on the amount of interest mortgage payers have to pay. They say it would see the amount people pay in mortgage interest soar by 13 per cent in 2023
The Bank slashed interest rates at the start of the pandemic to encourage spending rather than saving as the economy tanked.
But with inflation now predicted to rise above 4 per cent next year, all eyes were on the Bank at 12pm today as officials attempt to keep the economic recovery on course while combatting soaring prices.
While a rise in interest rates could have been a shot in the arm for struggling savers, it would have increased costs for borrowers and mortgage holders.
Anyone on a standard variable mortgage would see their bills rise as soon as the Bank hikes its base rate, while those on a fixed-term deal would find the cost of borrowing much higher when they come to renegotiate their deal.
It comes as data from the financial information service Defaqto this week revealed the number of sub 1 per cent mortgages on the market has decreased from 82 to 22 in the last week as speculation on a base rate rise has risen.
Economists at Wall Street bank Goldman Sachs had said a rate hike to 0.25 per cent was likely as officials on Threadneedle Street would want to ‘act pre-emptively and decisively’ in the face of rising prices.
Forecasts produced by the Office for Budget Responsibility alongside yesterday’s Budget suggest rising inflation may prompt the Bank of England to put up interest rates from the current 0.1 per cent to 0.75 per cent by the end of 2023
This MoneySavingExpert analysis looks at how two-year mortgage and swap rates compare, going back to pre-pandemic
But they added that a hike to 0.5 per cent would have been possible given ‘the desire to nip inflation in the bud’.
We acted quickly to bag a bargain, say couple who switched 3 months early
Michelle Davison and her husband Gary were keen to secure a new fixed-rate deal before the cheapest rates disappeared.
The couple from Newcastle upon Tyne have a loan of around £110,000 and were paying £676 a month for their 1.64 per cent two-year fix with Nationwide. But with the deal due to expire in February, they feared rates would be higher when they remortgaged.
Michelle Davison from Newcastle upon Tyne switched to a 1.09 per cent two-year deal, cutting their monthly repayments
After logging in to their online account, they discovered they could move their home loan three months early. The family have switched to a 1.09 per cent two-year deal with the same lender, cutting monthly repayments to £647.
Michelle, 36, who runs a toy business, says: ‘We were so relieved that we wouldn’t have to pay the 2 per cent early repayment fee and could still lock into a cheap deal. With council tax and energy bills all set to rise, we just wanted to make sure we had fixed our mortgage payments.’
Households would have faced an immediate £1.9 billion increase in interest payments on variable rate mortgages, credit card and other personal lending if rates were to have risen by 0.5 per cent, according to analysts at accountancy firm Mazars.
Paul Rouse, of Mazars, said: ‘It is important UK households are prepared for the impact of interest rate rises on their budgets. After the weekly grocery and energy bills, mortgage and credit card repayments could be the next items to become more expensive.’
On the other hand, Goldman Sachs had also added that the Bank could decide not to hike rates until its December meeting given the slowdown in the economic recovery and the end of the furlough scheme, which could see unemployment rise.
A lift in interest rates could prompt more households and businesses to hold onto their cash, stunting growth, as it becomes more expensive to borrow.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said before the decision was announced: ‘This week’s interest rate decision is on a knife edge, with the markets now almost entirely convinced of a rise, and economists divided.’
It comes as Nationwide revealed the average UK house price has topped the quarter-million pound mark for the first time.
It hit £250,311 last month, having grown by almost 10 per cent in the past year, according to a survey by the mortgage lender.
House prices have soared over the past two years, in part due to a stamp duty holiday during the pandemic that created a surge in demand.
Momentum continued after the tax break ended in September, with the Nationwide survey showing that prices have risen by £30,728 since the start of the Covid crisis in March last year.
It means the cost of the average UK home has risen almost fivefold in 30 years, climbing from £53,000 in October 1991.
The market has also been spurred by buyers looking for more indoor and outside space, but bigger properties have not been plentiful.
This has led to intense competition in rural and coastal areas such as Salcombe in Devon and Padstow in Cornwall.
Nationwide’s Robert Gardner said: ‘Mortgage applications remained robust in September, more than 10 per cent above the monthly average recorded in 2019.
Property boom: The average UK house price has risen almost fivefold in 30 years, Nationwide Building Society’s index shows
‘Combined with a lack of homes on the market, this helps to explain why price growth has remained robust.’
Average house price tops £250,000 for first time
The average UK house price has topped the quarter-million-pound mark for the first time, Nationwide says.
It hit £250,311 last month after rising almost 10 per cent in the past year, a survey by the mortgage lender found.
But homeowners face higher loan costs, with a Bank of England decision on interest rates today.
House prices have soared over the past two years amid a surge in demand during the pandemic.
Economists said the continued growth was also down to record high levels of savings as people stuck at home during the pandemic reduced spending.
Economists said the continued growth was also down to record high levels of household savings as people stuck at home during the pandemic reduced spending.
But with inflation currently at 3.1 per cent and predicted to rise above 4 per cent next year, there could be more uncertainty ahead.
The outcome of today’s Bank of England interest rate decision will be one factor affecting house prices in the months ahead.
An increase in the interest rate from the current record low of 0.1 per cent to 0.5 per cent would add £355 to the annual cost of servicing the average floating rate mortgage, Nationwide warned.
The cost of mortgage deals has been rising in anticipation of a possible hike in interest rates.
Andrew Wishart, property economist at Capital Economics, said: ‘We expect house prices to continue to beat expectations in the near term before a gradual rise in mortgage rates applies the brakes in the second half of 2022.’
However Tom Bill, head of UK residential research at property consultancy Knight Frank, said he did not expect interest rates to have a big impact on the housing market until they went higher than they were pre-pandemic.
He said: ‘The housing market has largely shrugged off the end of the stamp duty holiday and price growth continues to apparently defy economic gravity.
‘Interest rates were 0.75 per cent in early 2020 before Covid-19 struck and we wouldn’t expect any meaningful impact on prices or demand while they remain below that level.’
How to beat the mortgage bill hike: Rates are on the rise with cheap deals vanishing fast – but you CAN still save a fortune if you make the right move
By Fiona Parker and Amelia Murray and Helena Kelly For The Daily Mail
All eyes will be on the Bank of England today as it considers hiking interest rates for the first time in more than three years.
Such a move would signal the end of ultra-cheap loans and send up the cost of millions of mortgages in an instant. The bank’s base rate has sat at a record low of 0.1 per cent since the beginning of the pandemic in March last year.
At the time, the bank voted unanimously in favour of a cut from 0.25 per cent, to protect households and business from the havoc Covid-19 would soon wreak on the economy.
But with inflation now tipped to soar above 4 per cent, rates may soon need to rise to keep a lid on spiralling prices. Many major banks and building societies have already pulled scores of the cheapest deals from the market in anticipation.
At the start of last week there were 82 mortgages priced at less than 1 per cent. Yesterday there were just 22 left, according to analysts Defaqto. But as prices and taxes rocket, homeowners can still take huge strides to reduce the cost of their largest household bill.
Money Mail tells you all you need to know about what a rate rise would mean for you and when it is worth sticking or twisting:
Around 850,000 borrowers are on tracker mortgages which follow the base rate, according to banking trade body UK Finance.
Lenders are required to give base rate borrowers a month’s notice before they adjust their repayments.
So, if the base rate is hiked, households on tracker deals will not see their costs increase until next month. The average rate on a tracker deal is currently 2.45 per cent.
If the base rate was hiked to 0.25 per cent today, it would increase repayments on a £150,000 loan taken over 25 years by £12 a month from £669 to £681 — £144 a year — according to analysis by AJ Bell.
If base rate rose to 0.75 per cent by the end of 2023, the same mortgage would cost £719 a month, an increase of £50 a month or £600 a year.
And if the Office for Budget Responsibility’s (OBR’s) worst case scenario occurs, where base rate climbs to 3.5 per cent in 2023, the same monthly bill would be £962 — a £3,516 a year jump.
David Hollingworth, of mortgage broker L&C, says: ‘Not all trackers tie the borrower in, so homeowners may have an option to jump ship without a penalty and lock into a fix if they are nervous about what the future movement of rates could have in store.’
Standard variable rate households are at the mercy of the lenders as well as the Bank of England.
And this means that the 1.1 million homeowners on these deals could see their rates climb higher than any base rate increase, according to Jane King, a mortgage adviser at Ash-Ridge. Lenders still have to give a month’s notice before they alter repayments.
Households are rolled on to more costly standard variable rates when their fixed-term ends. But borrowers who stay on these deals could miss out on savings worth hundreds of pounds a month.
AJ Bell figures show households on Barclays’ standard variable rate are paying 4.59 per cent in interest — £841 a month on a £150,000 loan.
If this rate rose in line with the OBR’s worst case scenario, repayments could increase to £1,157.
By comparison, HSBC is offering the cheapest two-year fix on the market at 0.99 per cent for borrowers with a 40 per cent deposit.
Switching from Barclays’ standard variable rate could bring down monthly payments to £565 — a £5,625 saving over two years after the £999 fee is taken into account.
However, thousands of homeowners are trapped on these expensive rates after changes to affordability rules following the financial crisis.
This means ‘mortgage prisoners’ could face even harder times if interest rates soar again and they are unable to move to a cheaper deal.
Rachel Neale, of campaign group UK Mortgage Prisoners, says: ‘We know of people already on standard variable rates as high as 10 per cent and any base rate hike could be the difference between someone keeping their house or losing it.
‘It’s a devastating time for mortgage prisoners, some of whom are living off just £300 a month once their repayments are made.’
Competition has led to historically low rates coupled with generous lending. Several large lenders recently announced they would allow wealthy homebuyers to borrow five-and-a-half times their income — a record high.
At the same time, the cost-of-living crisis is expected to hit how much aspiring homeowners can borrow, and so lenders may retune their affordability calculators.
Halifax has already tightened up. Last month it began insisting borrowers earn at least £40,000 to borrow more than 4.49 times their income — up from £30,000. And in September HSBC made the same change for those who want to borrow 4.75 times their income.
Those with smaller deposits still have plenty of deals to choose from, with the vast majority of home loans for borrowers with 15 per cent deposits untouched. This is because these rates are already higher so lenders have a bigger margin to play with.
Robert Payne, director of Langley House Mortgages, adds: ‘Lenders are now much more confident to accept self-employed applicants and those with low deposits because the impact of Covid is more measurable and predictable and they have had time to create criteria to assess individual circumstances.’
However, if the market changes first-time buyers could be harder hit because they are already paying more.
Scramble to fix
The best rates are disappearing fast. Ulster Bank is now the only lender offering a five-year deal under 1 per cent.
Yet while many of the cheapest deals have gone, average interest rates have only edged up and are still very low.
Two-year and five-year loans have only increased by 0.04 percentage points to 2.29 per cent and 2.59 per cent respectively in the past month, according to Moneyfacts.
HSBC’s lowest two-year rate at 0.99 per cent is only 0.2 percentage points more expensive than the cheapest ever offered.
Brokers say they have been inundated with calls and emails from families desperate to lock into a low fixed deal. And many are now shunning two-year deals in favour of longer fixes.
Emma Jones, managing director of Alder Rose Mortgage Services, says: ‘It’s clear that people are keenly aware that rates are likely to rise pretty soon.
‘Most of the deals we are switching people to are five-year ones. Not many homeowners are interested in two-year deals at the moment.’
NatWest is offering the cheapest five-year rate at 1.13 per cent, with a £995 fee. This would fix monthly payments at £574 for a household with a £150,000 mortgage and 40 per cent deposit.
However, many borrowers are looking to fix their payments for ten years or longer. Virgin Money is touting the cheapest ten-year rate at 1.95 per cent. The same household on this deal would pay £632 a month.
But those who fix for longer should bear in mind any costly early exit fees should they need to move before the term ends.
Habito offers the longest-fixed deal on the market: a 40-year home loan at 4.65 per cent or £686 a month with a £150,000 loan. There are no charges for leaving the online lender’s long-term mortgages early.
> Best buy mortgage tables: Check the best rates for your circumstances and find out how to switch
Around 1.5 million fixed-rate deals are set to expire next year, according to UK Finance. Homeowners should think about switching six months before their term ends because most lenders will let you reserve a deal from this point.
Nick Mendes, mortgage technical manager at broker John Charcol, says: ‘If rates were to continue to decrease between now and then, you could look at switching to a lower rate in that time with the lender. A win-win.’
Those with fixed deals more than six months away from expiring may still want to consider switching early. But for the vast majority, penalties of up to 7 per cent of the loan will wipe out any potential savings.
Dominik Lipnicki, of Your Mortgage Decisions, says he has a client considering leaving his five-year deal 20 months early.
It means he would have to pay a hefty repayment charge of 4 per cent — around £30,000 on his £750,000 loan. But he believes the security a ten-year deal can provide makes it worth it.
Mr Lipnicki says: ‘We expect to see far more people switching out of fixed deals early . . . Some will be considering early repayment charges.’
With savings interest rates at an all-time low, it could pay to put your spare cash into overpaying your mortgage.
With mortgage costs still cheap, more borrowers can afford to make larger monthly payments. Santander says borrowers have cleared an extra £1.3 billion of mortgage debt this year.
Overpaying just £3 a day on a £250,000 loan at 2 per cent could save £7,170 in interest over a 25-year term.
And it would shave two years and five months off the lifespan of the loan. If you could spare £10 a day (£300 a month) you could slash your interest bill by £19,133 and clear your mortgage six years and eight months earlier, according to mobile phone savings app Sprive.
Most providers allow borrowers to overpay by 10 per cent of the outstanding balance a year without penalty. Be sure to keep back cash for emergencies.
Laura Suter, head of personal finance at investment platform AJ Bell, says: ‘Over shorter periods you could well be better off overpaying on your mortgage because you’ll save on the interest you would have been charged.’
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