Will interest rates go up tomorrow? Experts offer predictions

Experts are predicting there will be one interest rate rise this year but it is unlikely to happen tomorrow.

Kate Saines · what MORTGAGE

The Bank of England’s decision makers, the Monetary Policy Committee (MPC) will reveal on Thursday the latest Base Rate, which sets the cost of borrowing across the UK.

It is currently at 3.75% having been on hold for seven months. But with the threat of inflationary pressure due to the recent resurgence of strikes by the US on Iran, there had been speculation the MPC might raise the rate this month.

However, most experts believe the rate will remain at 3.75% tomorrow, but borrowers should brace themselves for a 0.25% rise in the coming months.

David Hollingworth, associate director at L&C Mortgages, said: “Two members [of the MPC] voted to increase to 4.00% at the vote in June so if that number grows, it could signal that borrowers need to prepare for the possibility.

“Even if the base rate holds, the market remains fluid with many lenders repricing in recent weeks forcing borrowers to act sooner rather than later.”

Harriet Guevara, chief savings officer at Nottingham Building Society, was even more certain the rate would not change tomorrow.

“The Bank is almost certainly going to hold at 3.75% on Thursday,” she said, “but that should not lull anyone into thinking the hard decisions are behind us.

“Inflation remains above the Bank’s 2% target, energy bills went up 13% at the start of July, and the conflict in the Middle East continues to push up oil and gas prices. Put all of that together, and markets are now pricing in one to two rate rises before the end of the year, meaning that a hold this month could be the calm before the storm.”

Meanwhile 59% of brokers who work under the Primis network expect the Bank of England to raise its base rate this year, a survey revealed.

How will new PM impact rates?

Guevara raised another important factor set to impact the course of interest rates, namely the appointment of the new Prime Minister, Andy Burnham and his new Chancellor John Healey.

“There is also a lot we still do not know about what the new Prime Minister’s first Budget will mean for people’s finances,” she said

“Until we have clarity on tax, savings and housing policy in the autumn, households are planning in the dark on several fronts. That makes it even more important to focus on the things you can control right now.”

Advice for borrowers if interest rates remain at 3.75%

For borrowers coming to the end of their deal and looking for a fixed rate mortgage, prices have already increased in the last two weeks.

Hollingworth explained fixed mortgage rates are driven primarily by market funding costs, which try to predict where rates may head, rather than react to Bank Rate moves.

However, a hold would still be far more welcome for these borrowers than a hike.

Hollingworth said market expectations would need to ease back before we can hope for a return to lenders cutting rates.

What’s his advice? “Securing a deal and then reviewing rates again before completing will avoid suffering further hikes but still allows a switch to a cheaper product before completion if rates improve,” he added.

For those on tracker rate deals, a hold would be good news since a cut is out of the question and a hike is the next most likely move.

However, Hollingworth suggests those on tracker mortgages should start considering how they might cope if proposed increases do come – albeit in several months’ time.

“A current two-year tracker at 0.29% above base would see payments on a £200k 25-year repayment mortgage rise by almost £28 per month if base rate rose to 4.00%,” he warned.

“If they now prefer the security of a fix, a switch will mean an initial increase given fixed rates have risen in recent weeks.”

What to do next…

Harriet Guevara advised anyone who is unsure about their next move in light of the current rate turbulence to speak to a mortgage broker.

“Anyone coming to the end of a fixed deal in the next six to twelve months should speak to a qualified mortgage broker now rather than waiting and hoping conditions will improve,” she said.

“A good broker can help you understand your options and make the right decision for your circumstances before conditions change.”