Interest Rates To Remain At 0.1% – Should You Remortgage?

Further to the Bank of England’s Monetary Policy Committee (MPC) meeting today, only 2 out of 9 policymakers voted to raise interest rates from the current record lows.

Many borrowers assumed rates would rise up to 0.25% in response to rising levels of inflation and low levels of unemployment.

So, what does this mean for mortgage rates in the UK?

Will interest rates rise in early 2022?

And should you lock into a fixed rate mortgage at lower rates while you still can?

We look at all of these questions, and advise you on how to get the best fixed-rate mortgage deals on the market.

Selected Top Fixed Mortgages

Providers
Rate
(APRC)
TypeMore
Info
HSBC Mortgages1.14%
(3.3%)
Fixed for 26 monthsGo »
HSBC Mortgages1.31%
(2.8%)
Fixed for 62 monthsGo »
NatWest Mortgages1.22%
(3.2%)
Fixed for 27 monthsGo »
RBS Mortgages1.37%
(2.8%)
Fixed for 63 monthsGo »
First Direct Mortgages1.34%
(2.7%)
Fixed for 60 months
Free Valuation
Go »
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Why might interest rates go up?

There has been mounting pressure on the Bank of England to raise interest rates due to the growing concern of rising inflation.

Rising inflation is an increase in the cost of living, and historically the BoE uses interest rates to keep inflation from spiralling out of control.

In Chancellor Rishi Sunak’s October budget, we saw that:

  • Inflation rates were higher than predicted, and are expected to peak at 4.4% in Q2 2022
  • Unemployment rates were lower than expected, with estimates to peak at just 5.2% in Q4 2021

With the risk of inflation snowballing out of control, BoE governor Andrew Bailey has said that ‘the bank will have to act’ over rising inflation.

Will interest rates rise in early 2022?

Looking back at the history of interest rates, (pre-covid and even further), we get a bigger picture about the path of interest rates and clues as to whether we’ll see them rise:

A brief history of interest rates:

Date & Event Interest Rates

  • 07/08 Financial Crash Dropped from 5% to 0.5%
  • 2016 – post Brexit vote Decreased further to 0.25%
  • November 2017 Increased for the first time in 10 years to 0.5%
  • August 2018 Rose again to 0.75%
  • March 2020 – Covid-19 Cut to 0.1% – a record low

The financial crash of 2007/08 led to over 15 years of low rates in the UK, but before the pandemic hit were we seeing a gradual recovery to higher levels?

Rates had risen from 0.25% to 0.75% within a few years, so could we see similar rate hikes now, or even quicker ones?

It’s impossible to know for certain, but the economic patterns show that we could see an interest rate rise in 2022 depending on inflation news, and many market predictors envision rates returning to a rise over the next few years.

What would an interest rate hike mean for mortgage rates?

When base interest rates go up, your mortgage interest rate usually follows.

Mortgage lenders have already been taking some low interest products off the market in anticipation of a rate hike, but today’s announcement will prolong lower mortgage rates in the UK and be a relief to people looking to remortgage or buy property in the near future.

If interest rates rise, fixed-rate mortgage products could also become more expensive, as banks don’t want to lock in to low interest rates if the base rate keeps going up.

So, the longer you wait, the more you could end up paying over the term of your mortgage – even if you do get a fixed rate loan. But with the base rate remaining at 0.1% for now, you still have time to act.

Research from Kensington Mortgages suggests that “most people would be willing to pay £1,200 more a year for longer term fixed mortgage” than a short term deal.

Should you lock in to a fixed rate mortgage now?

If you’re on a tracker mortgage or you’re paying your bank’s standard variable rate (SVR), your monthly mortgage repayments could increase as soon as interest rates next go up.

With the interest rates kept at 0.1% you are ok for the time being; however, we think it’s worth considering your remortgage options and thinking about whether a fixed-rate product could protect you against future rate hikes in 2022.

If you’re already on a fixed-rate mortgage, you have less to worry about.

You could face an early repayment charge (ERC) if you end your current mortgage before its term, and you should already be locked in to lower interest rates, at least for the time being.

Selected Top Fixed Mortgages

Providers
Rate
(APRC)
TypeMore
Info
HSBC Mortgages1.14%
(3.3%)
Fixed for 26 monthsGo »
HSBC Mortgages1.31%
(2.8%)
Fixed for 62 monthsGo »
NatWest Mortgages1.22%
(3.2%)
Fixed for 27 monthsGo »
RBS Mortgages1.37%
(2.8%)
Fixed for 63 monthsGo »
First Direct Mortgages1.34%
(2.7%)
Fixed for 60 months
Free Valuation
Go »
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

What kind of fixed-rate mortgage is best?

Most high-street lenders and private banks offer the following fixed terms:

Kensington’s research suggests that “eight in ten people (83%) would consider a long-term fixed-rate mortgage above five years for greater certainty of mortgage repayments”.

But remember, the longer your fixed term, the higher rates you’ll likely pay.

You won’t be able to lock in at super low rates for 10 years because the banks face a greater risk of potential rate hikes over the decade.

You can still fix your rate for this length of term, but you’ll likely pay a higher rate compared to shorter terms, and it might be better to take out consecutive 2 or 5 year fixed rate products that will provide you with lower rates overall (barring any rampant interest rate surges over the next 10 years).

There are always pros and cons when it comes to remortgaging.

Fixed-rate mortgages apply an early repayment charge if you end your mortgage before your fixed term ends.

Additionally, in the unlikely event of interest rates reducing further, you’d be locked into a higher rate than may be available elsewhere.

For independent mortgage advice use our service

 

Written by James Caldwell ,
4th November 2021