Mortgage warning: After the vote on the BoE rate in the next few weeks, creditors will be set for a “nasty surprise”

Inflation data was released today by the Bank of England and Kantar when the central bank announced how the British view inflation risks. In general, savers underestimate the effects of inflation, which bodes badly for mortgage and bondholders.

Inflation concerns

Hargreaves Lansdown examined the release and found that people now know the inflation rate much better: it estimates 3.7 percent for November (CPI was 4.2 percent in October). For comparison: In February of this year it was 0.4 percent, they estimated 2.5 percent.

However, the British are still underestimating how high inflation is now. This could really hit homeowners in the coming months, as the Bank of England expects inflation to easily exceed five percent by spring.

When asked what will happen to rates, 21 percent said they would stay about the same for the next 12 months, while 60 percent expect it to rise. The proportion who expect interest rates to rise in the next 12 months rose from 43 percent in August to 60 percent in November.

When asked what would be best for the economy, 25 percent of respondents also thought rates should go up, but these people may want to be careful about what they want.

Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown, commented on the results.

She said, “Inflation has become an urgent problem for millions of people who are seeing prices soar.

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“Usually only those who have a real interest in money have any idea what is going to happen to inflation, but right now millions of us know all too well how much pressure is on our budgets.

“Unless inflation is a big problem, most people need to make a rough estimate of what inflation might look like. Because of this, inflation averaged 2.5 percent in February when the CPI was 0.4 percent. But right now as the prices of everything from fuel to energy to food are skyrocketing, we are aware of how much more things are costing us.

“We are also aware of the possibility of an interest rate hike in the not too distant future. 60 percent of people expect interest rates to rise in the next 12 months – a number that has risen steadily over the past year, but has increased from 43 percent in the past three months. “

Ms. Coles also expressed concern about how many Britons expect and / or want interest rates to rise.

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Mortgage rates

She concluded, “Some of this may be because people believe that a price hike could control prices. However, when the same survey asked about the connection between interest rate hikes and inflation in February, just under a third were aware that higher interest rates could depress prices.

“There is a real danger that people will fail to see the impact a rate hike could have on the cost of their borrowing, and while those on fixed rate mortgages or loans are locked in for the duration, those on variable loans are price offers and everyone with a credit card could get a nasty surprise if the prices go up. “

This could hit a lot of families in the coming months as recent research by Moneyfacts suggests that the full range of mortgage products in the residential real estate sector has grown to its highest level in over 13 years.

Data from the latest Moneyfacts UK Mortgage Trends Treasury Report showed that the higher the availability, the higher the average total interest rates this month. However, average interest rates for those with lower deposits or equity levels have fallen, with average two- and five-year fixed rates currently at record lows since 2011 with a high loan-to-value (LTV) of 95 percent.

Myron Jobson, Personal Finance Campaigner at Interactive Investor, also recently warned of the dangers of rising interest rates for mortgage holders. At the beginning of December, Interactive Investor published the results of a survey of 1,900 website visitors. The survey focused on people’s greatest fears for their personal finances in 2022.

The results showed that inflation, stock market crashes and tax hikes weigh on savers and some of these dangers could be countered by increasing interest rates. However, Mr Jobson cautioned about the shortcomings of this option.

He said: “Interest rates are widely expected to rise immediately to combat rampant inflation, which rose to a 10-year high of 4.2 percent in October – more than double the 2 percent target. One could forgive the savers that the era of the lowest interest rates could soon come to an end.

“While many banks and building societies have quickly passed the key rate cuts on to savers in the past, this may not be the case with the increase in savings rates.

“The market expects interest rates to be pushed up slightly – from 0.1 percent to 0.25 percent – but in historical comparison they will probably remain at a low level for a long time to come. Even if there could be a slight delay in the savings rates, it is unlikely that there will be anything to complain about. Even so, it pays to look for the best savings option to make your money work harder for you. Those considering opening a long-term fixed rate account should consider where interest rates will go in the near future, as they will not be able to switch to a better payer until their fixed term has expired. “

Mr Jobson concluded by examining what could happen to mortgage holders and what should be done in response to the changes.

He said: “When it comes to mortgages, the UK’s 850,000 floating rate mortgage owners will feel the immediate impact of higher interest rates as their interest rate is pegged to the Bank of England base rate. For those who have entered into a fixed rate mortgage deal, the new rates will not apply until the end of their fixed term.

“In the past few weeks, cheap fixed rate mortgages have been withdrawn, but mortgage rates are still low compared to before and there are still many competitive offers on the market. Anyone looking to buy or reschedule in the near future should consider securing a deal now. Mortgage offers are often valid for months and it is not too early to look for the best deals now.

“For some homeowners, putting some of the savings on overpaying their mortgage is a breeze and a great way to save a significant amount of interest. There are limits to how much you can overpay and fees may apply so you should check with your mortgage provider first. “

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