The Bank of England
may have to raise base interest rates again to prevent pound sterling from
collapsing against the US dollar after it fell to an all-time low of just over
parity 1.03 this week following the Friday’s mini-budget.
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Last week, the
Chancellor Kwasi Kwarteng cut taxes, as well as Stamp Duty for 200,000
homebuyers to stimulate the property market a day after the Bank of England
(BoE) raised the UK base interest rate from 1.75% to 2.25% to combat inflation
warning that the country “may” already be in recession.
The independent BoE
move followed the Federal Reserve’s 0.75% hike last week putting further
pressure on UK bonds and sterling.
Mortgage lenders
have pulled fixed rate deals in anticipation of an early rate rise.
How high will
interest rates go?
The Bank of
England’s Monetary Policy Committee (MPC) meets in less than two week on 3
November and could be forced to raise rates again. The markets expects rates to
rise to 4.5% by next year, which could push mortgage rates to over 7%, a level
I have not seen for 20 years.
Now could be the
time to get advice from a broker about fixing your mortgage rate for at least
3-5 years.
If you are already
in a fixed rate deal and have a year or two left, you might want to consider
switching to a longer-term rate even if you have to pay a small ERC – early
redemption charge or penalty. Talk to a broker to weigh up the costs and
benefits or do your own calculations by factoring in an interest rate of around
4.5%.
With 10% inflation
and a weak pound, interest rates are on an upward trend, so take action now to
protect yourself.
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