The last meeting of the Bank of England’s Monetary Policy Committee (MPC) resulted in the fourteenth consecutive gathering in which an increase to the standard base interest rate occurred. The next meeting in September is likely to push the base rate even higher. While inflation has responded to the MPC’s rate hikes by dropping to 7.9% in June and is forecasted to fall to 6.8% in the next report, but it will still be three times the target rate of 2.0%. The increase to the rate is expected to be another 0.25% as in August which will take the rate to 5.50%.

The higher interest rates are heavily impacting the household budgets of homeowners. In some cases, it is causing affordability issues.

The higher rates are not just impacting those that are on variable or tracker interest rate mortgages. It is also taking a toll on those with fixed rate deals as they come to the end of their mortgage term. At the end of the term, the homeowner’s deal ends, and they have the choice to remortgage or to allow their lender to move them to the lender’s standard variable rate (SVR).

The choice to avoid the SVR and choose a remortgage is considered the best option as the remortgage is likely to have the lower interest rate. This is especially true when rates are rising. A remortgage allows the homeowner to choose a fixed rate to lock in the rate and avoid further increases. Therefore, choosing a remortgage over a SVR could save money for the homeowner, and locking in the rate with a fixed rate deal could save them even more.

This is why a fixed rate remortgage is the most popular remortgage product currently. Most homeowners are choosing a five-year fixed rate to allow plenty of time for the economy to level out and it gives peace of mind as they avoid any increases that might be voted on by the MPC.

There is a unique number of homeowners that are having to deal with a major financial shock due to the rate hikes, it is those that have had their two-year fixed rate mortgage end or will have it end this year. A homeowner that secured a two-year fixed rate mortgage that ends this year will have chosen their interest rate when the Bank’s base rate was at an all-time historical low of almost zero at 0.1%. Lenders at the time were offering their own historically low rates.

Those homeowners will see their low rate disappear and will have to choose from rates offered connected to a Bank base rate that is the highest in 15 years.

The possibility of another rate hike making mortgage repayments more expensive comes along with information of wage growth which could keep inflation from being impacted by the MPC’s efforts. This could keep the inflation rate higher than it would be otherwise, which will require more Bank base rate hikes. This is why some experts are forecasting a September rate increase by the MPC. 

The next data report on inflation is due Wednesday. Should inflation remain above the forecast of 6.8%, or remain near the last report of 7.9%, a greater rate hike than 0.25% could occur, like the 0.50% that was voted for in June. With a favorable report on inflation, a stay in the current base rate could be voted on by the majority of the MPC, or the expected 0.25%.

The next meeting of the MPC is scheduled for 21 September.