Bank of England ratesetter: Mortgage pain will affect our decision on interest rates
The Bank of England’s decision on the interest rate will be shaped by the severity of the coming mortgage shock on households, according to one Threadneedle Street ratesetter.
Catherine Mann, who sits on the Bank’s monetary policy committee, said that households had been “very resilient” in the face of inflation so far but said there are “concerns about what’s going to happen to households with a mortgage.”
The warning came on the same day that new figures suggested the average London household could face a £7,300 annual increase in their mortgage if they refinance this year.
As recently as two months ago most analysts had expected the Bank rate to top out at 5 per cent, but a string of data releases suggesting inflation is stickier than expected has had City watchers upping their rate-cycle peaks to 5.25 or 5.5 per cent.
Higher interest rates have been “reflected in higher mortgage rates…(as a result) householders will be exposed to significantly higher rates,” she said.
Consumer resilience in the face of rising rates will be “an important ingredient” for the rate-setting committee Mann said, and the Bank will keep a close eye on how higher rates transfer into “consumption headwinds”.
The Bank’s forecasts suggest that increasing mortgage rates could dent consumption by over 0.5 per cent by the end of 2025, although Mann highlighted a range of uncertainties behind those forecasts.
Mann’s comments came shortly after Santander became the latest bank to temporarily pull a range of products. The bank said the products will reappear on Wednesday, likely at higher rates.
A Santander spokesperson said: “We continually review our products in light of changing market conditions.”
Natwest has also upped rates on a range of its products, with large increases for buy-to-let mortgages.
Analysts at the Centre for Economics and Business Research reckon mortgage rates will average 5.1 per cent in 2023 and 4.6 per cent in 2024, an £8.7bn increase across the country for those coming to the end of fixed rates.
“While the Bank’s tightening cycle might be nearing its end, the impact on households is only just beginning,” Benjamin Trevis, an economist at the think-tank warned.
Mann, who has been consistently hawkish since joining the Bank’s , was speaking at an event hosted by Signum Global Advisors.