Will interest rates rise soon and what will this mean for anyone not on a fixed-rate mortgage deal? We look at the recent media reports and offer our own perspective…

The media has recently reported that interest rates are predicted to rise in December in order to keep a lid on inflation. According to reports, fuel and food shortages mean that inflation could rise before Christmas, and interest rates could therefore also increase.

The markets are starting to factor in a December rate hike according to the website, This Is Money. The Telegraph has reported that homeowners could expect a climb in interest rates on a new two-year fixed-rate mortgage to 1.7 per cent by the end of 2022. This would equate to almost £50 per month extra on a mortgage of around £200,000.

If you’re currently on a fixed-rate mortgage deal, your monthly payments will remain the same if interest rates rise. However, anyone on a standard variable rate can expect to pay more. In addition, if you’re about to take out a mortgage you may be tempted to rush to get it done on a fixed rate basis before rates go up. So is an increase likely?

‘It would seem pretty clear to me that the Bank of England will need to act by increasing rates,’ says MB Associates’ Sales Manager Phil Leivesley. ‘In the last meeting at the end of September, the Monetary Policy Committee unanimously voted to hold the Bank Rate at 0.10 per cent. However, talk of a rate increase has been growing more and more feverish over the last couple of weeks.’

Phil adds: ‘Lenders are usually a reliable barometer of when we can expect things to change. Up until very recently, many lenders were still engaging in a price war, undercutting each other with ever more historic low rates below one per cent. However, within the last couple of days, we’ve seen lenders start to reprice their products in an upwards direction, making them marginally more expensive. Halifax is the latest, lifting its rates by 0.25 per cent. This is an indication that we might see a Bank Rate rise sooner than I personally would have expected, and perhaps even before Christmas. My advice to anyone wavering over whether to secure a new fixed rate would be to look into doing this as a matter of urgency.’

Should you switch?

If you’re currently on a fixed rate deal that’s due to end in the next year, you may think it makes sense to try and switch to a new fixed-rate deal for up to five years. It may sound like a sensible plan, but it is possible that an early repayment charge could negate any savings. It’s always worth seeking advice from an experienced mortgage broker.

‘I’ve already had a few clients who have read about predicted rate rises in the media,’ says Phil. ‘One client is six months into a two-year fixed-rate and would have an £11,000 early repayment charge to pay if he were to switch. He has asked if he can fix his rate for five years but doing so would cost him £12,500 over the next 18 months alone, whereas a 0.5 per cent increase to the cost of borrowing when he comes to remortgage would only be an extra £63 per month.’

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