Mortgages could spike yet again if the Bank of England raises interest rates as high as expected tomorrow (November 3). In a crunch meeting on Thursday, nine members of the Monetary Policy Committee will make a decision that will affect millions of homeowners across the UK.
It is thought that the Bank of England will unveil the 'biggest interest rate rise since the 1980s' as it aims to control inflation amid the cost of living crisis. The all-important decision is expected to push up the Bank’s base interest rate from 2.25 percent to 3 percent, which would be the highest rate since 2008.
If the Bank raises interest rates by as much as 0.75 percentage, it would be the biggest single increase since 1989. It will also be the eighth time in a row that the Bank has hiked interest rates, as less than a year ago the rate was just 0.1%.
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As mortgages are decided against this rate, this could push up monthly repayments for millions of mortgage holders across the country.
Earlier this month, markets had predicted the interest rate increase could be as much as one percentage point but this has since calmed down after the change of Chancellor and Prime Minister, and Bank of England bond purchases pushed down on the cost of borrowing, reports PA news agency.
Mortgage rates soared after the mini-budget was delivered by former Chancellor, Kwasi Kwarteng, on 23 September 2022 while former Prime Minister Liz Truss was in power. After this many lenders began pulling their mortgage products from the market as they needed time to reprice them.
Last month Bank of England Governor Andrew Bailey said it was likely the hike in interest rates could be bigger than the 0.5 percentage point increase to 2.25% seen at the previous meeting.
He said on October 15: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Analysts at Deutsche Bank have said they expect the Bank of England to opt for a 0.75 percentage point rise with a split vote. Experts at the firm said they expect latest forecasts from the Bank of England, which will also be revealed on Thursday, to show that “the economic outlook has deteriorated further”.
They added: “Conditioned on market pricing, the UK economy will likely fall into a deeper and more prolonged recession.”
The Bank will also confirm its inflation expectations for the longer term, which are due to show that the cost of living will be much higher than the central bank’s 2% target next year.
James Smith, developed markets analyst at ING, also had a downbeat prediction for the Bank’s latest economic outlook. “The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal – showing both a deep recession and inflation falling below target in the medium term,” he said. “That should be read as a not-so-subtle hint that market pricing is inconsistent with achieving its inflation goal.”
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