Financial Expert Warns of Potential 7% Mortgage Rates as Bank of England Tackles Inflation

Financial Expert Warns of Potential 7% Mortgage Rates as Bank of England Tackles Inflation

…By Henry George for TDPel Media.

Financial experts are warning that two-year fixed mortgage rates in the UK could potentially reach seven percent as the Bank of England takes measures to control escalating inflation.

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Data released recently reveals that mortgage rates have already surged to 6.19 percent.

Luke Hickmore, the investment director of fixed income at abrdn, emphasizes that many individuals will be compelled to renew their mortgages in the coming months, having taken them out during the Covid pandemic with reduced stamp duty rates of around two percent.

Bank of England’s Monetary Policy Committee Expected to Raise Interest Rates

The Bank of England’s Monetary Policy Committee is anticipated to increase interest rates by 0.25 or even 0.5 percentage points, following the confirmation of May’s inflation rate at 8.7 percent.

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Hickmore, speaking on BBC Radio 4’s Today program, explains that while predicting the exact correlation between the Bank’s interest rates and two-year fixed mortgage rates is challenging, it could imply rates in the high six percent range, possibly even touching seven percent.

Potential Impact of Increased Mortgage Rates on Borrowers

If the mortgage rates were to rise to seven percent from a previous two percent rate, homeowners could face additional costs.

For instance, on a £350,000 home loan with 25 years remaining, monthly payments could increase by £990 or £11,880 per year.

Similarly, for a household with a £150,000 loan and 15 years remaining, monthly payments may rise by £383 or nearly £4,600 per year.

Recent Mortgage Rate Data and Market Trends

New data from Moneyfacts shows that the average two-year mortgage deal now carries an interest rate of 6.19 percent, while the average five-year rate rose to 5.82 percent.

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Buy-to-let rates also experienced increases, with the average two-year rate at 6.49 percent and the average five-year buy-to-let deal at 6.33 percent.

The market has remained relatively stable in terms of available products, despite lenders withdrawing around 150 offerings.

Market analysts indicate that rates have already surpassed the six percent mark this week in anticipation of the Bank of England’s rate hike and the expectation of sustained higher rates.

Expectations and Risks Surrounding Interest Rate Increases

Economists and financial markets project that the Bank of England’s interest rates could rise to six percent as a measure to combat inflation.

The Monetary Policy Committee is likely to raise rates from the current 4.5 percent, with further increases expected in the future.

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Financial markets anticipate a rise of 0.25 percentage points to 4.75 percent, but there is a 40 percent chance of a larger increase of 0.5 percentage points to five percent.

This decision carries implications for households and landlords refinancing their borrowing, leading to concerns about the potential impact on the “mortgage time bomb.”

Rising Inflation and the Bank of England’s Response

Persistent inflationary pressure has prompted the Bank of England to continue raising interest rates.

Core inflation, which excludes the price of energy, food, alcohol, and tobacco, has remained elevated, along with wage growth.

Core CPI increased to 7.1 percent in May from 6.8 percent in April, causing concern among policymakers.

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The Bank of England aims to address these indicators of inflation as it sets interest rates.

Calls for Action and Government Engagement

Consumer champion Martin Lewis has raised concerns about the “exploding” mortgage ticking time bomb, leading Chancellor Jeremy Hunt to engage with major lenders to discuss the issue. MPs

on the Treasury Committee have also criticized banks for not raising savings rates to the same extent as borrowing costs.

The Bank of England’s commitment to increasing interest rates remains tied to its observation of inflationary signals.

Anticipated Peak Interest Rates and Economic Outlook

In recent weeks, expectations of the peak interest rate have surged, with the market now foreseeing a high of six percent by early next year.

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If realized, this would mark the highest level in over two decades.

The economic impact and implications of such rates will be of concern to policymakers and households alike.

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