The Bank’s Monetary Policy Committee voted unanimously to leave the base rate at 0.1%, where it has remained since March 2020. The Committee sets its monetary policy to meet a 2% inflation target, but said that the reopening of the economy is likely to see inflation rise to 4% in the final three months of the year, before it falls back closer to 2%.
The rate of unemployment is now at 4.8%, higher than before the pandemic but a slight reduction compared with the previous quarter. The Committee noted that it will monitor developments in the labour market closely.
Although the Bank doesn’t want to stifle economic recovery following the pandemic, if inflation doesn’t start to fall back, there’s a chance that rates could rise in the not-too-distant future. Rate increases make the cost of borrowing more expensive, so can help slow the pace of economic growth.
Prepare for higher rates
It therefore makes sense for homeowners and those considering buying a property to think carefully about how they’d cope financially with higher rates.
If you’re on a variable rate mortgage which tracks the base rate, any increase would be passed on straightaway. Those on other types of variable deal, such as discounted or standard variable rate mortgages, are also likely to see their payments rise if the base rate goes up, although whether any increase is passed on in full is up to the discretion of individual lenders.
Those on fixed rate mortgage deals won’t see their payments change, as these provide peace of mind that the rate will remain the same for the term of the deal, regardless of what happens to the base rate.
However, if you’re approaching the end of a fixed rate deal, you may want to consider locking into another fixed rate sooner rather than later, to avoid rolling onto your lender’s standard variable rate when your current deal finishes. if you’re planning to lock into a fixed rate deal, take a look at the current best deals, and seek advice if you’re not sure which mortgage is right for you.