Thrifty Loans

It appears that mortgage rate misery is set to carry on getting worse as another base rate rise now seems more likely than ever for August.

Fears a further rate rise increased on Tuesday 17 when inflation figures were released. The rate of inflation as measured by the Consumer Price Index (CPI) was down to 2.4%, but this is still above the Government’s target of 2%. The Retail Price Index is a measure of the wider cost of living and this actually rose from 4.3% to 4.4%, which is even greater cause of concern. A third measure of inflation takes out items prone to short term fluctuations, and this went up to 2% – its highest level in ten years.

These will be troubling figures for the Government, showing that inflation is taking its time to respond to the interest rate hikes that the Bank of England has bestowed on the country in the last twelve months. Further, this will raise fears of a real house price crash as spending and inevitably higher mortgage rates become less and less sustainable.

Base interest rate rise are meant to slow down economic growth and consumer spending, with shops having to drop prices as a result. But it is not happening quickly enough and a further rate rise may come as soon as next month.

If so, it would be the sixth rise in 13 months and the rate would be 6% – its highest level since February 2001.

Mortgage rates will go up again and those 2m homeowners waiting in the wings to come off fixed rates from two and three years ago will find their interest rates shooting up from around 4.5% to 6% and over. On a £200,000 repayment mortgage, they would need to find another £179 a month in interest payments, plus an excruciating arrangement fee of anything up to £2,000.

Related posts:

1. Fall in inflation raises hope of no further rate rises
2. House price inflation down to single digits
3. Inflation down again in August
4. Rate rise looks inevitable
5. Turbulent markets may delay rate rise