The Bank of England raised the base rate to 0.75% this afternoon, marking its third hike in three months. With geopolitics clouding the economic outlook and inflation running at a 30-year high, we speak to Knight Frank Finance managing partner Simon Gammon to find out how the next few months are likely to play out.

• Hi Simon, Thursday’s interest rate decision marked the first time the BoE has executed three back-to-back hikes in decades. What have you been seeing in the mortgage market during this period?

The big story is the lenders continuing to withdraw or re-price products. At the beginning of the year, we saw very little movement in mortgage rates, now across the market products are consistently being withdrawn and re-priced. Often that re-pricing is by as little as 0.1% or 0.2%, but if that’s happening every other week then you start to see a steady upward trend.

It’s an important theme and it’s cropping up in many of the conversations we’re having with clients. Those that were considering locking in a deal before Christmas but decided to wait are now finding the best offer available is half a percent more expensive, or in some cases even more.

• What is your advice to borrowers in this market?

The mortgage rates that you are seeing today are noticeably higher than six months ago, and in six months we would expect to see a similar increase.

It’s a trend that is going to be in place for a while. Five-year fixed rates were as low as 0.91% late last year, but now you’d be lucky to get them under 2%. You haven’t missed the boat though, these rates are still very low by historic standards, but our message is clear – it’s better to act now rather than later.

• We’re seeing two-year fixed rate products at some providers priced higher than five-year and ten-year products – have you ever seen that before? Why is it happening?

I can't recall seeing two-year fixed rate mortgages priced higher than five and ten-year products in more than 20 years in the business.

Inflation is climbing rapidly and swap rates - financial instruments that act as a leading indicator for borrowing costs - suggest that investors believe we're going to see a spike in costs and interest rates over the next year to two years before markets start to normalise. That's likely why we're seeing this anomaly.

This poses tricky questions for borrowers. Most should avoid variable rates at the moment unless they may be required to repay the loan quickly. As a borrower the question then is how long do you want to fix for? Are you likely to occupy the property for a short period, or might you be there long term? In the latter scenario, a five-year fixed loan looks attractive. A decade is a long time to commit and ten-year products often have quite onerous terms should you want to change plans, so that's something borrowers should look closely at.

• How do you see the market adjusting during the coming six months?

I think we’ll see a continuation of rising mortgage rates, I don’t see that slowing during the next six months. I don’t envisage the lenders becoming less generous – I think they will continue to lend on the same criteria, for example income multiples will remain in place. However, I do think it’s likely we’ll start to see people struggle to borrow what they had initially hoped due to costs. We might start to see people realigning what they can afford.

• We’ve seen a substantial increase in older homeowners opting for later life finance products like equity release, particularly among wealthier homeowners. What in your view is driving that?

I think there are two factors. Firstly, there’s a growing willingness among the professional advisors to consider equity release as part of tax planning. Their awareness of the products has increased substantially in recent months. Plus, changes to the rules governing pensions make equity release at current rates more tax efficient than taking money out of your pension.

By that I mean releasing equity in your home is tax free, whereas the money in your pension is going to be taxed. So we’ve seen this shift in professional advisors suggesting homeowners utilise the equity in their homes before their pensions. We’re also seeing much more appetite among the largest lenders to do bigger deals.

Secondly, there is a swell of interest-only mortgages that were agreed during the 1990s that are now coming to an end. These are mostly 25-year mortgages, and many borrowers haven’t paid them off. For these people, who are often retired now, equity release can be the best option to secure their finances.

We believe the growth of later life finance is going to be one of 2022’s biggest trends.

If you are purchasing a home, looking to remortgage this year or would just like a conversation with one of our advisors to discuss your options, get in touch. We have access to over 200 lenders and can help find the most suitable and cost-effective mortgage for you.