Bank of England governor tells mortgage providers their fixed rate deals should be LOWER

On Nov 3, 2022

Bank of England governor tells mortgage providers their fixed rate deals should be LOWER after he orders biggest interest rate rise in 30 years

Andrew Bailey said things would get worse if the bank did not raise interest rates
The Bank of England governor said that there was ‘no easy outcome to this’
It hiked the rate from 2.25 per cent to 3 per cent today to tackle soaring inflation

Published: 19:30, 3 November 2022 | Updated: 21:55, 3 November 2022

The Bank of England governor has warned mortgage providers that their fixed rate deals should be lower after ordering the biggest interest rate rise in 30 years.

In a press conference following the rates decision, Andrew Bailey said that things would get worse for all Britons if the Bank did not raise interest rates, which could hit mortgage-holders by £3,000 a year.

‘We do understand the difficulties of the situation we’re in and the difficulties mortgage-holders face,’ he said.

‘If we don’t take action to get inflation down, things will get worse.’

The Bank of England governor said there was ‘no easy outcome to this’.

‘What we have announced today… should not lead to higher mortgage rates, I think there is a downside to mortgage rates in that sense,’ he said, adding that the market expects mortgage rates to drop.

He added: ‘Based on where we stand today, we think the Bank rate will have to go up less than currently priced in financial markets and that’s important because, for instance, it means the rates on new fixed term mortgages should not need to rise as they have done.’

The Bank of England governor has warned mortgage providers that their fixed rate deals should be lower after ordering the biggest interest rate rise in 30 years

Britain was told to brace itself for two years of economic pain today as the Bank of England introduced the largest interest rate rise in three decades.

The Bank of England hiked the rate from 2.25 per cent to 3 per cent to tackle soaring inflation in a move that added thousands of pounds to annual unfixed mortgage bills at a stroke.

But alongside the measure was a warning that the UK is already in a recession and would probably continue to experience economic contraction until the middle of 2024.

If confirmed it would be the longest experienced by the UK since records began in the 1920s – stretching far beyond the Bank’s previous forecast of 15 months.

By 2025, the Bank forecast, unemployment will have leapt from 3.5 per cent now to 6.5 per cent.

Interest rates are now the highest they have been since the Global Financial Crisis in 2008 after the 7-2 decision by the Monetary Policy Committee (MPC), the eighth rise in a row.

The increase – which followed a similar announcement by the US Federal Reserve last night – is the largest daily move since Black Wednesday in 1992, when Britain’s decision to pull out of the Exchange Rate Mechanism sent markets spiralling.

But the panicked rate hike on Black Wednesday lasted for just one day. The last time there was a sustained rise of this size was in 1989.

Borrowers with a £200,000 standard variable mortgage could see their repayments jump by more than £1,000 a year.

After the lunchtime announcement, Chancellor Jeremy Hunt admitted that the move would be ‘very tough for families with mortgages up and down the country’.

But he said it was necessary to act now and avoid larger, more brutal steps in the future.

It comes ahead of his Autumn Statement on November 17 in which he is expected to introduce swingeing tax rises and spending cuts for families and businesses to fill a £50billion spending black hole.

‘The best thing the Government can do, if we want to bring down these rises in interest rates, is to show we are bringing down our debt,’ he told broadcasters.

‘Families up and down the country have to balance their accounts at home and we must do the same as a Government.’

House prices could drop by as much as 30 per cent, lender warns

House prices could fall by up to 30 per cent in the worst case scenario, a mortgage lender has warned, as homeowners face spiking interest rates and persistent inflation.

MPs have been alerted to the fact that the UK faces economic uncertainty over the next year as house prices could crater by almost a third.

Chris Rhodes, chief finance officer at Nationwide Building Society, told a Treasury Committee hearing yesterday: ‘My best case is slowly increasing house prices and my worst case is potentially a 30% per cent fall, but those are the two extremes which are tail probabilities.’

Mr Rhodes said that the ‘weighted average’ is around 8 per cent to 10 per cent but insisted that it was ‘not a forecast’.

Earlier today, homeowners were hit with the largest increase in interest rates in more than 30 years, potentially adding hundreds of pounds to mortgage payments.

The Bank of England hiked the rate by 0.75 percentage points to 3 per cent at lunchtime, the highest it has been since the Global Financial Crisis in 2008.

It is the highest single increase for 33 years as central bankers look to get a grip on runaway inflation which is battering British households.

Nationwide had revealed this week that house prices fell by 0.9 per cent month on month for the first time in 15 months in October and the sharpest drop since the start of the pandemic.

Annual house price growth also slowed sharply to 7.2 per cent in October, from 9.5 per cent in September.

Across the UK, the average house price in October was £268,282 – and the housing market looks set to slow in the months ahead.

This followed the then chancellor Kwasi Kwarteng’s tax-cutting splurge on September 23 that prompted lenders to withdraw hundreds of deals and replace them with more expensive offers.