Six more interest rate hikes in 2022?

The Bank of England raised its base rate to 0.75% after the Monetary Policy Committee voted 8-1 in favour of another increase. When the base rate was increased to 0.5% in the previous meeting, it was the first back-to-back interest increase since 2004.

But this could just be the start of things to come. Across the pond in the US, the latest Federal Reserve projections suggest that the US will get six more interest rate increases in 2022. Unlike their US counterparts, The Bank of England is remaining tight-lipped, despite the UK experiencing a 30-year high inflation rate prior to Putin’s invasion of Ukraine.

Although we don’t know for sure what will happen to the Bank of England’s base rate in the future, the figures projected in the US may give us an indication of what’s to come. And if they are going to play out as projected, mortgage payers might want to take action.

The Federal Reserve’s Projections

The Federal Reserve is the USA’s central banking system and does a job comparable to the Bank of England. Based on projections from the Federal Reserve, the central banking authority expects to increase its interest rate six more times in 2022. The estimates suggest that after six more interest hikes, the US’s interest rate will hover just below 2%.

The projections come from a group of experts in the Federal Open Markets Committee. But individual projections within the group are not as coherent. Whereas some experts believe the interest rate will be close to 1.5%, others project it could top 3%. The median projection was 1.9%.

The previous committee meeting took place in December 2021. The projections from that meeting estimated only three interest rate increases during 2022. Sustained high inflation rates coupled with the events unfolding in Ukraine have ripped up those previous projections.

What would base rate increases mean for UK homeowners?

The base rate influences the interest charged on many mortgage products, including Standard Variable Rate (SVR) mortgages and tracker mortgages. If you have one of these mortgages, any increase in the base rate will make your interest repayments more expensive.

Although we cannot be sure of what the Bank of England will do over the rest of 2022, six more interest hikes would have expensive consequences for many homeowners. You may decide to take action now and switch to a mortgage product that isn’t influenced by the base rate, such as a Fixed-Rate mortgage. However, you should also be aware of early repayment charges to exit your current loan and other factors.

Speaking with a trained UK mortgage adviser is the best way to make the right choice. Our experienced team will be happy to discuss your options and ways to save on future mortgage payments.

April 2022