It appears to now be inevitable that the Bank of England will increase base rate within the next six months. What is less inevitable is how much it will go up by and there is a chance that base rate increases may not go up in the quarter or half point increments that we are used to, instead it may increase by amounts such as .125% or .65%, for example.
If this happens it will be interesting to see how the lenders react, firstly they may well not have the systems capabilities to increase rates by these unusual increments as they have never needed to do so before. On a positive note, this could mean that if interest rates increase by less than a quarter of 1% that lenders may not increase rates at all, especially if they feel that they do not need to increase savings rates. Any drive to increase rates on savings will inevitably push lending rates up more however.
What it might be more useful for brokers to do is to monitor swap rates. Usually by the time that the Bank of England has announced that it will increase rates it is too late to swap the client onto a new fixed rate as the cost of funds will already have increased, and so therefore will the rates available in the market.
The CML reports that one million first-time buyers have never experienced an interest rate rise. Any rise therefore could cause a payment shock for some people. While many will still be on fixed rates, those on variable rates or those coming to the end of their fixed rate term should be encouraged to review their mortgage taking into account their current circumstances and objectives.
