Emergency interest rate hike planned as pound tumbles

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An emergency interest rate hike was expected in response to the pound falling to a record low this morning.


City traders expect Bank of England (BoE) policymakers to meet ahead of their scheduled meeting in November to raise the base rate again, according to an article in the Financial Times (FT).

The value of the pound fell dramatically this morning in response to Chancellor Kwasi Kwarteng’s mini-budget Friday in which he announced the biggest tax cuts in 50 years.

Although the BoE declined to comment on today’s speculation of an emergency rate hike – the rumor itself could impact mortgage rates, which are already climbing in response to interest rate hike last week.

Over the past year, there have been seven consecutive rate hikes, which have seen the interest rate climb from its low of 0.1% in early December 2021 to hit 2.25% on Thursday as the Bank of England is looking for ways to bring down record inflation.

The next interest rate decision was due in early November, but an additional emergency hike before that would be another blow to borrowers.

Joshua Raymond, director of financial brokerage XTB, explained: “The point [pound] declines quickly require the intervention of the Bank of England to announce a rate hike that would surprise the market.

“It may well be that to restore some sort of credibility, we need a 2% BoE hike immediately. But this type of intervention could pit the central bank against direct hostility with the Treasury, so even if we see some sort of intervention, it won’t be the end of the uncertainty.

What would an emergency interest rate hike mean for borrowers?

Following each interest rate increase, real estate tracker borrowers will automatically see their rate increase. So if the BoE made a surprise rate hike before November, trailing mortgage customers would see an instant increase.

For those with standard variable rate (SVR) mortgages, the rate may very well be passed on by their bank – customers of these offers are advised to switch as SVRs tend to be the most expensive.

Those with fixed rates will be protected until they need to remortgage, but at the end of their contract they will be exposed to rising rates.

So for anyone looking for a mortgage to finance a move, a new property or a new mortgage, there is now a risk that prices will rise again before November.

Jamie Lennox, director of Norwich-based mortgage broker Dimora Mortgages, said: “Many landlords are already finding themselves in a position to tread water with recent rate hikes.

“However, any further rise could lead to hundreds of thousands of people being dragged into the deep. intervention seem increasingly likely.

“Mortgage holders whose mortgages are up for renewal within the next six months cannot afford to hide in the sand and, if they haven’t already, must put their foot on the pedal to get the next secured mortgage. »

Mortgage to renew? Talk to your broker

If your mortgage contract is due to expire within the next six months, it’s a good idea to talk to a broker about your options. This is because there are lenders out there who will let you sign up for a new contract six months in advance and therefore allow you to lock in current rates – before they go up.

Anil Mistry, director of Leicester-based RNR Mortgage Solutions, said: “On Monday morning there were no updates in my inbox from lenders regarding their rate developments. However, it further highlights the urgency for all brokers where a client’s transaction is ending within the next six months to speak to their clients as soon as possible to have their mortgage and situation reviewed.

“Therefore, a new rate can be secured before any further increases by the Bank of England and, in turn, lenders raising their rates.”

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