Rates - where are they headed

The inflationary effect of immediate tax cuts, the preferred option of Liz Truss, will counterbalance the enormous drop in people's disposable incomes caused by the cost of living crisis and higher mortgage costs. The dangers of fiscal loosening have been hugely overstated in my opinion. On the other hand, Rishi Sunak's proposal to continue piling on the economic misery, with tax cuts years down the road, reveals a man deeply out of touch. I don't think he has the remotest comprehension of just how tough things are becoming for people. Mortgage rates may well be lower under Liz Truss's tax-cutting regime. The economy will be in better shape, and a stronger pound will help in the battle against inflation. Sunak's proposals will have the opposite effect. Either way, I expect the Bank of England base rate to increase to around 2.5-3% this year, and possibly higher still next. My general advice would be to seek to fix your rate as soon as possible, for as long as possible, because ultra-low interest rates are unlikely to return any time soon.

The cost of living crisis is only a few months old. Inflation is still rising, a new round of utility bill hikes is set to hit just as households turn the central heating back on, and though mortgage rates have more than trebled, many borrowers are yet to notice as they're yet to reach the end of fixed rates taken out before this year. It therefore seems unlikely the Bank of England can keep hiking the base rate, and while we're set to see further rises in 2022, there's increasing talk they may have to cut rates in 2023 as the cost of living crisis really starts to hit people. Whether tax cuts from either Truss or Sunak is enough to offset this is highly debatable.

We have already seen sizeable increases in mortgage rates and this is set to continue as the Bank of England tries to manage inflation. Many borrowers have never experienced such rises and that, added to the cost of living crisis, is creating severe affordability issues. More and more borrowers are attracted to longer term fixed rates, giving much needed stability.

Either way, interest rates are going up in the short term. The best way to keep the mortgage payments down is to fix as soon as possible. Everyday, there is another lender that informs us that their rates are going up. The sooner you apply, the quicker you can lock into the rate.

Rates are increasing at an alarming rate currently and the problem is that we won't see the full impact of this for some time. If rates remain at this level or higher we could have people coming off rates that were between 1% and 2% onto rates 7% or higher. This might take years for people to feel the impact of this if they still have 2 or 3 years left on their lower interest rate but the problems it could cause to a household can't be ignored. We have no idea when the peak of the interest rises will be so for now my advice to my clients is still to fix where it's appropriate for their circumstances.

I think the immediate tax cuts are a great idea and will really benefit those on lower incomes which is what we need in the housing market. However if the tax cuts are going to cause the predicted spike in mortgage rates up to 7% this is going to make it more difficult for all types of borrowers and put those that need to remortgage (especially those that took use of the 95% LTV deals in a very difficult financial position where they are going to be unlikely to have the income to support borrowing at such high rates. In addition to this as we have seen in the past an increase in interest rates will cause a crash in the housing market meaning that not only will it be harder for those remortgaing to borrow the amount needed but they could even be in negative equity. My main piece of advice would be to fix your mortgage rate now for at least 5 years, that way your monthly payments will stay the same regardless of any rate rises in the market. Even if you are currently on a fixed rate with a year or two remaining it might still be worth paying off your early repayment charges to fix onto a new rate as these fixed rates may not be as easy to come by in the next few years.

I feel the Government are putting all their eggs in one basket to reduce the spiralling inflation rate and relying on Bank Of England to increase interest rates. Inflation is not going because the UK has too much disposable income, it's a supply chain issue. Poverty rates are the highest amongst our lowest earners in years and increasing rates further will only cause their households to struggle more as they're more likely to have unsecured debt on credit cards which are mostly on variable rates. If rates continue to rise at the rate they are the UK is heading nervously towards another recession. With regards on advice about keeping mortgages rates down for home owners it's imperative they speak to a broker 6 months before their existing deal is up for renewal because the new mortgage deal can be secured in advance. Never borrow more than you need and consider a fixed rate protect you against further future rate rises and give you the power to budget month to month.