Homeowners could face higher borrowing costs once more following Chancellor Rachel Reeves’s £40billion Budget tax raid.
Fears are growing that mortgage rates could once again creep up if the economy deteriorates.
With the tax squeeze on Middle England and fears that inflation could go up as the Government goes on a public sector spending spree, markets initially reacting badly to the cash grab on our finances.
The Bank of England base rate – to which mortgage rates are linked – currently stands at 5 pc. But this rate could start to rise if a deterioration in the economy leads to a rise in inflation and the base rate is hiked to keep a lid on this.
The latest measure of inflation – the Consumer Price Index (CPI), which was published earlier this month, was 1.7 pc in September. The rate peaked in October 2022 at 11.1 pc.
Homeowners could face higher borrowing costs once more following Chancellor Rachel Reeves ’s £40billion Budget tax raid
The Office for Budget Responsibility (OBR) predicts mortgage rates could rise by almost a percentage point to 4.5 pc over the next three years
The Office for Budget Responsibility (OBR) predicts mortgage rates could rise by almost a percentage point to 4.5 pc over the next three years.
In its Economic and Fiscal Outlook report, released alongside the Autumn Budget, the OBR said: ‘Average interest rates on the stock of mortgages are expected to rise from around 3.7 pc in 2024 to a peak of 4.5 pc in 2027, then remain around that level until the end of the forecast [which is 2030].’
Jamie Lennox, director of broker Dimora Mortgages in Norfolk, says: ‘Do not assume mortgage rates are going to continue to go down just because they have recently – because the Office for Budget Responsibility has a real understanding of the situation.
The cost of funding higher minimum wages and providing pay increases for public sector workers with all these tax hikes means that the cost of borrowing for the Government is likely to go up – and this could hurt our mortgage rates.’
David Hollingworth, a broker for London & Country Mortgages, says: ‘The mortgage market has seen bouts of huge volatility over the last couple of years and rates are currently in a better place.
But there may be a move towards more people opting for longer fixed-rate deals, such as five years, due to concerns of later rate rises.’
Markets are no longer betting on two Bank of England base rate cuts this year – as before the Budget.
City traders are still betting the Bank of England will cut rates by a quarter of a percentage point next week, but are giving a 40 per chance of a further cut in December.