Future mortgage shock looms for fixed-rate borrowers: interest rates will rise to over 4% next year and stay there well into 2024, City forecasts say
Interest rates will rise to over 4 percent next year and stay there well into 2024, the city expects.
The revelation will come as a blow to millions of businesses, households and mortgage holders who are grappling with the greatest cost pressures in generations.
The Bank of England has raised interest rates six times in a row to 1.75 percent in a bid to stem rampant inflation.
Uptrend: The Bank of England has hiked interest rates six times in a row to 1.75 percent to curb rampant inflation
Despite the growing risk of recession and the huge increase in household energy bills, another rate hike is on the horizon later this month.
Just a month ago, experts were forecasting that interest rates would peak at 3 percent by the end of this year, before falling again next year.
However, with inflation set to rise well into the double digits, rates are expected to hit 4 percent next February, according to SONIA, a major commercial benchmark used to set mortgage rates.
Worse, the cost of borrowing will continue to rise, peaking at 4.4 percent in June 2023 and not falling below 4 percent until April 2024.
“It’s a huge step in every way,” said Jackie Bowie of risk consultancy Chatham Financial. ‘The magnitude and acceleration of market interest rate expectations is significant.’
Higher interest rates should help the pound, which has just seen its worst monthly decline against the dollar since the Brexit referendum. There are growing fears that sterling, currently at $1.15, could slip to parity with the dollar.
The Bank of England has been criticized for not raising interest rates sooner to nip inflation in the bud.
However, the bank’s stance is in stark contrast to its eurozone counterpart.
An era of free money will end there this week when – as widely expected – the European Central Bank hikes interest rates above zero for the first time in a decade.
The best mortgage rates and how to find them
Mortgage rates have risen significantly as the Bank of England’s base rate has risen rapidly.
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