He notes that energy prices “remain the elephant in the room” and the central bank “will be hoping they don’t keep escalating”.
Patel adds: “The squeeze for the real economy ahead is real and we can already see the heart-breaking stories in the news.”
On the other side of the coin, questions about whether those with cash in the bank may finally be able to get a return abound, but the general feeling is that the value of savings will still be eroded by inflation.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says mortgage borrowers “risk getting burned by the intense heat of rate rises in the mortgage market”, while savers “may struggle to notice the lukewarm efforts of savings providers”.
Fixed rates
Murphy says that with inflation at its highest level in years and forecast to continue, now may be a good time to fix mortgages.
“For most households their mortgage represents their largest household expenditure. Therefore, switching to a fixed rate for many will give them peace of mind and assurance in terms of being able to budget accurately for a large part of their monthly outgoings at a time when consumers have very few choices in terms of having any certainty over many elements of day-to-day living costs.”
Chan says he did not think many people would be celebrating a 0.5 per cent interest rate.
“It has hovered around this level since 2009 and well below the level of inflation over the same period.”
In fact, the severity of the situation in terms of mortgage rates may lead to a surge in equity release for those who own property. Matt Stirland, head of equity release at Age Partnership, says that in the standard mortgage market we are likely to see lenders passing the rate increase onto their customers.
He explains: “The big difference between standard mortgages and equity release is equity release rates are fixed for life, so those people with existing plans are safe in the knowledge that their rate won’t be jumping.
“It has been well documented in the media that rising interest rates in the conventional mortgage market will push up the cost of living for those customers on variable and base-rate tracking products. This will be an additional household expense along with increases in energy bills, council tax, national insurance and other household bills.
“All of this may well result in additional demand for equity release as, even with equity release rate increases, the fact that monthly repayments are optional means that it will remain a viable solution for those aged 55 and over who are looking for additional retirement income, gifting to family or funding for home improvement.”
Stephen Lowe, group communications director at Just Group, says that rising interest rates could see an upward rise in activity in the mortgage market for various reasons, such as house prices remaining strong.
