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Fears grow of a spike in mortgage rates as the Government battles to curb rising inlation – check if you can lock-in now to save £1,000s

MoneySavingExpert.com founder, Martin Lewis, warned that a UK rate rise was “on the cards” in our weekly email on Wednesday 20 October, adding that now may be the time to “lock-in cheap deals to save £1,000s” (see below for more on this). 

However, the OBR has now predicted that inflation will rise to 4.4% in 2022, and that in a worse-case-scenario it could increase to as much as 5.4%. It says this is due to rising energy prices and wage growth, which in turn could see the Bank of England’s base rate rise to 3.5% in order to dampen price rises, according to the OBR. Experts say the result could be a spike in mortgage rates. 

The Chancellor, Rishi Sunak, also hinted at possible inflation hikes in Wednesday’s Budget. He said: “I have written to the Governor of the Bank of England today [27 October] to reaffirm their remit to achieve low and stable inflation… I understand people are concerned about global inflation – but they have a Government here at home ready and willing to act.”

Brokers warn that best buy mortgage rates could be on the rise 

Aaron Strutt, a mortgage broker at Trinity Financial, told MoneySavingExpert.com that best buy mortgage rates may rocket if the base rate rises in line with the OBR’s predictions. He said: “Mortgage rates typically get more expensive when the Bank of England increases the base rate.

“If it goes up to 3.5%, it is not unreasonable to predict the best buy mortgages being priced around 4.5% and many other rates hitting well over 6% or 7%. The cost of first-time buyer low deposit rates would be off the chart and unaffordable.” 

But Ray Boulger, from broker John Charcol, told us the likelihood of base rate going up to 3.5% is “sufficiently remote,” and he therefore doesn’t see the base rate rising much above 1%. He said: “Clearly in the short-term inflation will rise and it will go above the Bank of England’s latest forecast. However, I think the Bank will see through it as a short term blip and look to the long-term.”

Check NOW if your mortgage deal is as good as it can get

Both scenarios put forward by the OBR are worst-case, however, earlier this month, the Bank of England’s Governor said the Bank “will have to act” over rising inflation, which means a rise in interest rates could be likely, so it’s better to check your mortgage deal NOW before it’s too late.

As Martin said in our weekly email: “Normally the rate of the cheapest mortgage deals tends to follow similar City ‘swap rates’ – basically long-term interest rates predictions. Yet over the last year, unusually they’ve been somewhat de-linked. This is likely due to a combination of increased competition, and banks having a glut of cash due to Quantative Easing (ie, the Govt sort of printing money), but that’s due to end by January.

“Put this together with possible UK base rates rising and it’s highly likely change is a comin’ – and possible mortgage rates could go up steeply and swiftly. So EVERYONE with a mortgage should check now if your existing deal is as good as it can get – and that applies double if you’re languishing on your lender’s standard variable rate.”

See our Eight mortgage cost-cutting need-to-knows for full help on how to check your rate to see if you can save by switching. You can also use Mortgage Calculator to compare best buys and read our Remortgage guide for further info. 




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