Mortgage holders are the “biggest losers” of the Bank’s hawkish decision.
Samuel Fuller, director at Financial Markets Online, said: In recent weeks, markets had begun to predict that the Bank would be content to leave interest rates unchanged for the rest of the year.
“That bet may now change as the Bank’s minutes suggest it has refined its stance from ‘watch and wait’ to ‘watch and wait with a big stick’.
“While this means no immediate change for savers, we’re likely to see mortgage interest rates tick back up in the coming weeks. With America’s on-off war with Iran now into its sixth month, continued volatility and lingering inflationary pressure have tipped the Bank into more hawkish territory, and UK equities and mortgage borrowers could be the biggest losers.”
Fixed rates
Borrowers coming to the end of a fixed-rate deal will be more concerned to see fixed rates climbing in recent weeks.
David Hollingworth, associate director at L&C Mortgages said: “Fixed mortgage rates are driven primarily by market funding costs, which try to predict where rates may head, rather than react to Bank Rate moves.
A hold is still welcome, but market expectations will need to ease back before we can hope for a return to lenders cutting rates.”
Tracker rates
If the Bank leaves rates unchanged, homeowners on tracker mortgages will likely be delighted, given the talk of a need for higher interest rates, says Mr Hollingworth.
He said: “They will see no change to their monthly repayments as their rate is directly pegged to base rate.
“A hike in rates is now more widely expected by markets than it was, so tracker borrowers may want to consider how well they can cope with it if increases do come.
“A current 2-year tracker at 0.29% above base would see payments on a £200k 25-year repayment mortgage rise by almost £28pm if the base rate rose to 4.00%.
“If they now prefer the security of a fix, a switch will mean an initial increase, given fixed rates have risen in recent weeks.”
Standard Variable Rates
Borrowers on standard variable rates (SVR) are also unlikely to see any direct impact from the decision itself. However, there are no guarantees, as lenders can change their SVR at any time and for any reason.
Mr Hollingworth said: “More pressing is that they are likely to be paying more than they could. Standard variable and follow-on rates are typically 2 to 3 percentage points higher than the best rates on the market.
“Borrowers on standard variable rates that are waiting to see how things pan out could therefore be paying way more each month when an easing in fixed rates could take time, if it comes at all.”
