Recently, the Bank of England announced an interest rate rise of 0.75%, taking the current rate to 3%, the highest level since 2008. This rate rise was no surprise as inflation has remained high, and this is the course of action the Bank of England takes to try and bring inflation down.
The Bank of England must ensure that inflation is low and stable because high inflation means that our goods and services cost more and money is put into the economy. High-interest rates mean it’s more expensive to borrow money, and we all have less to spend. This results in money being drawn out of the economy with borrowing spent on borrowing such as mortgages. The Government has set the Bank of England an inflation target of 2%, but the current level is 10.1%.
Even though last week’s rise is the highest we have seen for many years, it is lower than the rise forecasted after the government’s mini-budget announcement. In fact, mortgage rates have fallen over the last few weeks. This reflected the view that interest rates would rise to 3% this month – and so most lenders have already factored this rate rise into their fixed-rate deals.
Immediately after the midi-budget, the financial markets were in turmoil, but we now see much more stability. There have been more mortgage deals made available in the last few weeks, and the cost of fixed-price mortgages has started to fall – and could fall further as we head into 2023.
Although it’s unlikely that the interest rate increase last week will result in higher fixed-rate mortgages, lenders have tightened their affordability criteria to ensure people can afford their mortgages.
First-time buyers who are already struggling to get onto the property ladder may find it difficult still to get a mortgage, so they must explore all the options available to them.
If you are on a tracker rate mortgage, you are likely to see your repayments increase as you will pay according to the current interest rate plus a set percentage. If you’re on a fixed rate, you won’t see your repayments change until you reach the end of your fixed rate term when you are automatically switched onto a Standard Variable Rate (SVR) (unless you lock in a new fixed rate deal). Lenders determine the SVR as it’s not directly linked to the BofE interest rate.
Talk to us at The Mortgage Hub if you would like help and advice whether you’re remortgaging, buying your first home or looking to invest in a buy-to-let property.