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How will Thursday's Bank Rate rise affect mortgage rates?

Journalist: Melissa Lawford, The Telegraph

ended 02. November 2022

I'm looking at to what extent Thursday's Bank Rate rise will impact rates on fixed-rate mortgages. Investors have priced in a 0.75 percentage point increase in the Bank Rate on Thursday, but some analysts have argued that mortgage rates could already have peaked. Do you think that the increases in the wake of the mini-Budget were so steep, this rate rise has already been priced in to fixed-rate mortgage rates? Or do you think lenders will continue to raise rates? (And if they do continue to do so, is that fair?)

6 responses from the Newspage community

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Jonathan Burridge
Founding Adviser at We Are Money
Fixed rates are not directly linked to the base rate and we have seen fixed rates reducing recently as "the market" perceives a firmer hand now at the tiller of the country. A rise in the base rate is widely expected and, therefore, there will not be a sudden increase in fixed rate pricing. In fact, fixed rates may continue to reduce some more unless some other wildly unanticipated event arises.
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Sabrina Hall
Mortgage Adviser & Protection Adviser at Kind Financial Services
I believe that the steep increase we had in reaction to the mini-Budget was so significant that the increase in the base rate won't have such a significant impact on the fixed rates that lenders are currently offering. In the past week, we've seen lenders reducing their rates and this will be in full knowledge of the announcement and predictions of a rise. Additional factors impacted the rate increase, too, such as service levels with lenders who then tried to actively price themselves out of the market to reduce the amount of applications they were receiving. These lenders seem to have come back into play now, which indicates that they have an appetite to lend again.
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Imran Hussain
Director at Harmony Financial Services
The majority of lenders have already priced this increase in and any that have not will immediately make changes. However, fixed rate mortgages are rarely driven by the Bank of England base rate, but more by swap rates. Of course, trackers and variable rate products are always impacted by any changes to the base rate.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The Bank of England is expected to raise rates by 0.75% and mortgage lenders have already factored this into their prices. Mortgage rates should only increase if the Bank of England is more aggressive than expected, which is a real possibility. This rise won't be the last of the year, as we expect there to be a lump of coal left in our stockings from Andrew Bailey as interest rates are expected to go up another half percent in December. If this is the case, lenders will up their prices before the New Year draws in.
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Jamie Lennox
Director at Dimora Mortgages
Lenders have already priced in the fact that the base rate will likely continue to rise between now and spring 2023. Since the mini-Budget, we've already seen a number of lenders who have actually reduced the rates they are charging on fixed deals, with more likely to follow once their service levels return to normal.
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Graham Cox
Director at Bridging Hub
There's no doubt that fixed rates have become overpriced since the mini-Budget fiasco. Tracker rates are about 40% cheaper right now, for example. It's entirely possible, therefore, that none or only part of the Bank of England base rate hike will be passed on by lenders. That said, interest rates will continue to rise until inflation starts falling. Most market economists expect interest rates to rise to 4.5% at least next year. That would mean mortgage rates well in excess of 6%, even for mainstream borrowers, with 7%-8% the new norm for anyone with adverse credit or unusual circumstances. If that comes to pass, house prices will continue to plummet.