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  • Writer's pictureAlastair Hoyne

Finanze® Daily Digest -13/10/2022

The Brief: The Bank of England suggested a possible interest rate hike this November as the Monetary Policy Committee convenes again based on schedule. Huw Pill, BoE’s chief economist, announced that the move is intended to respond to the government’s fiscal measures.

Why It Matters: UK households will brace once again for surging domestic prices and higher mortgage payments due to Threadneedle Street’s decision. Those who have a tracker mortgage (around 850,000) will have to expect the impact reflected on their payments since this type of mortgage is directly linked to the BoE’s base rate. Likewise, those who have a variable-rate mortgage (about 1.1 million) will have to wait for their lender’s discretion if the increased borrowing cost will be most likely passed on to them. Those on fixed-rate mortgages, on the other hand, will also face pressure when they remortgage if their deals end by December.

Finanze® Foresights: Affordability has been compromised for many weeks already. Unlike in the United States where many homeowners have refinanced to take advantage of very low interest rates in 2021, the UK has more than 2 million homeowners who will shift to new mortgage deals once their fixed-rate mortgages expire within two years. In addition, compounding pressure is felt by first-time buyers who are caught by the property market slowdown due to decelerating home sales volumes and a shortage of available supply. A report by Bloomberg highlighted that prime neighbourhood sales in London dipped by 18% in September. But if potential buyers choose to stay in their rented homes for now, landlords who are squeezed by higher rates once they refinance will likely pass on the costs of more expensive mortgage to their renters’ monthly payments.

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