Bank of England interest rates climb to 4.5%
UK mortgage interest rates have continued to increase recently with news of today’s Bank of England base rate review. The 0.25% percentage point increase (12th consecutive increase) follows a previous rise in March. This leaves the UK with a base interest rate of 4.5%.
This is the highest interest rate since the global financial crash in 2008 and the mortgage market crisis.
A question many have now, is ‘how will this affect your mortgage repayments and monthly outgoings?’. Stubbornly high inflation and increasing interest is unlikely to be welcome news to anyone, especially with the UK in a cost of living crisis.
Our mortgage experts are explaining more about this latest interest rate hike, and what this means for your mortgage in 2023.
What was decided in the May 2023 Monetary Policy Committee meeting?
Today was the regular meeting of the UK Monetary Policy Committee (MPC). Following this, it was decided the Bank of England base interest rate will rise to 4.5%.
This isn’t overly surprising news, as core inflation is standing strong at more than 10%. This is 8 points higher than the recommended figure of 2%. 2% inflation is believed to be the best when aiming for economic stability.
Will interest rates keep rising?
Currently, the UK has the highest interest rates in the G7. This follows on from the impact of the Covid-19 pandemic, which hit the UK economy hard.
At the moment, the UK has the lowest economic growth within the World’s most advanced economies. Although the impact of the pandemic was global, other countries have recovered far quicker. e.g. France and Germany.
A main barrier to economic growth and stability is the consistently high level of inflation in the UK. It is likely that if inflation continues to stay at high levels, interest rates won’t drop any time soon.
Interest rates are directly tied into inflation and so if one is high, the other usually will be as well. The aim of raising interest rates is to lower inflation, by lowering demand for products and services e.g. loans or credit cards.
We have all felt the impact of high inflation, with the rising cost of essential products and services in the last year. Economists hope that inflation will reduce to a manageable level by the end of 2023. If this is the case, the Bank of England should then begin to reduce interest rates.
What should I do about rising mortgage rates?
If you are on a tracker mortgage, you will soon end up with higher repayments. This is because the interest rate you pay is linked to the Bank of England base rate. If that increases, then your mortgage interest (and monthly payments) will increase as well.
The same goes for most people on variable rate mortgages. A lender can adjust their variable rates at their own discretion.
However, it is common for them to increase rates in line with Bank of England changes. This means it is possible your mortgage payments could soon increase. It is best to watch out for any news from your lender in the near future.
The best way to avoid rising costs would be to consider remortgaging to a fixed rate before prices increase further. A fixed rate mortgage will freeze your interest at an agreed amount for a set number of years. This allows you to budget for years at a time, without worrying about any sudden rises in cost.
If you need proper advice about your mortgage, our skilled mortgage experts can help. Our team have helped hundreds of families across the UK get the protection and mortgage they need, removing any extra stress and hassle.
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