Anderson HarrisMarket Insight
Anderson Harris reaction to latest interest rate rise
Published: 3rd February 2023
This Article was Written by: Adrian Anderson
The Bank of England’s Monetary Policy Committee had to “go big” again on 2 February 2023, raising interest rates to their highest level in over 14 years to 4% in the battle against inflation.
Inflation stood at 10.4% in December 2022, just below its 41-year peak in October 2022. The cost-of-living crisis continues, and 2023 will most likely see households face some of the most challenging conditions for living standards on record.
This week’s rise to 4% had been expected, as inflation is not yet under control. The question is, will the Bank of England base rate stay at this level or rise further, peaking at around 4.25% or 4.50%? And then how long will it have to remain at these levels to ensure inflation is under control? It’s a delicate balancing act.
It’s almost impossible to remember that the Bank of England base rate stood at just 0.1% in December 2021.
Some 1.8 million mortgage holders will see their fixed rate deal finish in 2023 and are yet to feel the impact of rising interest rates.
These homeowners, along with the estimated 2 million on variable rate deals, are likely to have a mortgage shock. They face a significant increase in their payments at a time when most of their other outgoings have increased markedly.
Currently, only a small number of mortgage holders are behind on their mortgage payments. This number could rise though, as homeowners move onto much higher mortgage rates. It’s a very different market to the ‘old normal’ of the last 14 years.
Tougher affordability calculations
Compounding the issue is that those seeking to renew their mortgages will likely find lenders’ affordability calculations more challenging. That’s because lenders are factoring in higher household bills and expenditure, as well as higher interest rate stress testing. If property prices are falling, this may also have an adverse impact on the loan to valuation (LTV) when renewing a mortgage rate.
One small ray of light is that fixed mortgage rates have been falling for the past three months despite the Bank of England’s rate rises. It remains to be seen how long the mortgage fixed rates will continue to reduce.
Lenders keen to support customers
Also on a positive note, lenders are keen to support their customers through the current period. While the cost-of-living situation is grave, in our experience, mortgage lenders want to treat customers fairly and don’t want to launch a tsunami of repossessions.
Each person’s situation is of course different, and banks are reviewing accounts on a case-by-case basis. But, generally speaking, mortgage lenders have an appetite to help if customers alert them in plenty of time to any problems.
Our strongest piece of advice for mortgage holders is not to delay. Those preparing to speak to their lender should ensure they are clear about their current income and outgoings, including assessing how much they may fluctuate in the short term. Borrowers should also be open to discussing various alternative options with their mortgage lender.
Also see our article What to do if you’re worried about making your mortgage payments
Can we help?
Talking to an independent mortgage specialist can help you take the informed decisions you need at this difficult time. Contact our team of specialists on tel 020 7495 6633 or email email@example.com.