Hike rates

Will the BoE raise its rates to 4% by the end of the year?

The Bank of England (BoE) could raise interest rates to 3% or 4% by the end of this year, some have predicted.

Speaking on BBC Radio 4, former MPC member Andrew Sentance said the BoE was falling behind and may have to raise rates between 3% and 4% by the end of the year .

Regarding the likelihood of the base rate hitting 3% to 4%, Mortgages for Business sales manager Jeni Browne adds, “I think 3% is more likely and seems to be what most economists are predicting for the end of 2023. Currently, many experts expect inflation to peak at around 13% this fall. However, given that it has already exceeded forecasts, some are suggesting that it will be 15% at the start of 2023. Still, I think the base rate is unlikely to reach 4% as it is not expected be necessary.

As the cost of living crisis continues, the Office for National Statistics (ONS) reported yesterday that inflation in the UK had reached 10.1% in Julysetting a new record in 40 years.

The latest figure is driven by a 43.7% rise in fuel prices year-on-year and a 12.7% rise in food and non-alcoholic beverages.

Last month, the ONS reported inflation hitting 9.4% in June, down from 9.1% in May.

The Bank of England (BoE) increased the base rate by 50 basis points to 1.75% August 4.

The increase marked the sixth base rate hike since December 2021 after a decade of historic lows. Interest rates are now at their highest level since December 2008.

Speaking on what can be done if rates hit 4%, Private Finance CTO Chris Sykes says: “One of the main things some people do if they have savings and can to afford it is to pay off their mortgage with overpayments or a lump sum in the event of a remortgage.

“In the past when rates were low people would often keep debt high and invest spare money, now maybe guarantee you a saving of say 3.5% compared to an investment that could earn you 6% could make you lose 5% might be worth liquidating and putting into your mortgage.

“If you don’t have that option, two ways to reduce monthly payments are to extend the term of the mortgage or put some of the debt on interest only. I generally encourage clients to, if they can, just pay the highest rates and take no steps to reduce payments, as that inevitably means paying more interest over time (unless you make overpayments).

Meanwhile, Connect Mortgages managing director Liz Syms said: “We’ve gotten used to very low rates, so 3% to 4% seems high, but historically it’s still low. For some, this could cause a price shock, especially when combined with other increases such as energy bills.

“Anyone who still has a variable or tracker rate could always consider fixed rates to protect against possible next hikes, but it’s worth considering what the price difference is between their variable rate and a fixed rate. If their current variable rate is 1% lower than the fixed rate, for example, switching to a fixed rate simply guarantees that they will have to pay more. »

“Those who have benefited from the accumulation of savings over the past two years may wish to consider linking their savings and mortgage to a ‘compensatory’ mortgage. This means that they will save the interest on the mortgage as if they had used their savings to pay off the mortgage, but retain the flexibility of being able to use those savings in the future.

“Most important is that the client seeks advice from an independent mortgage adviser to ensure they are aware of all the options available to them.”