Move quick to get best mortgage deals before interest rates rise


ome owners looking to re-mortgage should get their skates on. That’s the message from mortgage brokers surveying the latest signs of market movement, and the latest remarks from Bank of England governor Andrew Bailey.

What did Bailey say?

“The energy storm,” warned Bailey, means high inflation “will last longer”.

He added, in words more explicit than Bank governor’s usually use: “Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations. And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.”

Is this a shift in position?

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Yes. Until recently, the Bank has tended to insist that inflation will come and go, that global supply chain issues and rising energy costs will pass. Its concern was not to derail the economic recovery from Covid by putting up borrowing costs. The City expectation was that rates would rise very slowly from 0.1% starting sometime next year. Now the City is betting on a rate rise next month, with rates at 1% by next September.

Laith Khalaf, head of investment analysis at AJ Bell, says:

“The market is now expecting an interest rate hike by Christmas, largely thanks to the inflationary pressures which will inevitably follow the energy crisis, and some markedly hawkish rhetoric from the governor of the Bank of England. According to interest rate markets, there is now an 85% chance of a rate rise this year, and a 60% chance of a hike at the next MPC meeting in November. Markets are pricing in tighter policy because the energy crunch could prompt a dramatic U-turn on interest rate policy at the Bank of England.”

What does that mean for mortgages?

They are going to go up – watch out for announcements from big lenders very soon, this week in all likelihood. Some of the best deals around at the moment are a two-year fix with Barclays at 0.86% and a five-year fix with NatWest at 0.97%. Truthfully those deals may already be on the way out.

Move fast, is the advice. Elliot Nathan at broker Eddge Mortgages says: “For most borrowers looking for a mortgage, I would advise taking a 5yr fixed rates as they are at their lowest levels in history. This may not apply for everyone as it depends on how long you plan to live in your property for to your personal circumstances may not require a 5yr fix. On the whole, its likely interest rates will rise at some point so in any instance a fixed rate should strongly considered.”

Is this going to be a shock to people?

There are around 10 million Britons who haven’t seen rates above 1% in their adult lives. As such, they may find that if they haven’t fixed their mortgages, the monthly cost increases several times in short order.

Is the Bank in a tricky spot?

Undoubtedly. Rising energy costs might have the same effect as an increase in interest rates anyway, putting a brake on economic growth.

More from Khalaf: “There’s also the human element to consider. The Bank’s interest rate committee voted unanimously to keep interest rates on hold less than a month ago, so a 2021 rate rise would require a pretty humbling collective shuffle across the aisle.”

The next UK inflation figure is due on Wednesday. It is expected to come in at 3.2% before rising to 4% later – the Bank’s inflation target is 2%.

Bond yields rose and prices fell today. A five-year government gilt was today paying 0.85%, the highest since May 2019. There’s a similar picture for bonds in the US and elsewhere.

When do we find out?

The Monetary Policy Committee meets on November 4th, one day after the more powerful US Federal Reserve makes its own position clear on rates. Ahead of that clarity, expect share prices to wobble. If investors think rates are going up, they might prefer to buy bonds than equities. If rates were rising because the economy looked strong, that might be good for corporate earnings, but it feels more like central banks are being bounced into putting them up due to things outside their control

Higher interest rates might be good for banks of course, as their profit margins rise. Barclays are the first of the big banks to report their latest figures on Thursday, the others follow.