As predicted by most people, the Bank of England has announced that they will be increasing the base rate again. This time by 0.25%. The new Bank of England Base Rate of 4.5% is a whopping 3.5% increase on the 1% level that it was in May 2022 and a 15-year high. What is the industry reaction so far to the rate increase? Will this be the last one finally? What will happen to mortgage rates?
What Is The Bank of England Base Rate?
We have unsurprisingly gone over this quite a lot of the last six months or so, but for those readers who are unfamiliar with the function of the Bank of England and the base rate, here is a brief explanation. The Bank of England is the central bank of the UK based in London. The bank is in charge of regulating monetary activities and financial institutions such as banks and building societies across the country.
They also handle things like inflationary pressures, GDP, exchange rate etc. Another function that the bank has is regulating interest rates. All institutions that lend money (banks/building societies) will charge a rate of interest on the money they have lent. The Bank of England will set a base rate that they will charge these institutions at, and lenders will then apply their own rate on top of this, so that they can make a profit.
Why Has The Bank of England Increased the Base Rate?
When borrowing and spending gets too high, inflation grows in the country. It is the Bank of England’s job to make sure that inflation is as low as possible. They currently have a target inflation rate of 2% but at the moment the level is at 10.1%. The tried and tested way that the bank has done this in the past is by increasing the base rate, making borrowing and spending more costly and hopefully deterring it. That is what the Bank of England have done over the last few months.
Unfortunately, the rate of inflation in the UK has not dropped anywhere near where the bank wants it to be and so they have had to ramp up the base rate to try and shock inflation back to the right levels. That means that if this latest Bank of England base rate of 4.5% makes little or no difference, another increase could be on the cards in worst case scenario. In the best case scenario that we are all hoping for, inflation will drop down to single figures and costs will start to come down.
Mortgage brokers and administrators at Oportfolio are already speaking to clients about the new base rate increase. although there hasn’t been a huge shift in mortgage interest rates yet, this new increase will likely cause lenders to re-position their product offerings and increase rates, just so that lending the money in the first place makes any sense. We shouldn’t see as high rates as we saw in September/October/November 2022 when the mini budget was announced, but rates will probably go up across the majority of lenders.
What could this mean for the property market? The property market in the UK has already taken a bit of a battering over the last few months as people have been more reluctant to buy and sell while mortgage interest rates are higher than average. In recent weeks there have been some encouraging figures from organisations like Rightmove that the average sale price of property has increased, however this could rapidly change if mortgage rates go up again.
What Can I Do If I Am Concerned About Rising Interest Rates?
Rising interest rates is something that most mortgage owners are concerned about at the moment, so don’t think for one second that you are on your own. Our job as mortgage advisors at Oportfolio is to help people get the best mortgage for their own circumstances and to make sure our clients are comfortable and happy with their property finances.
If you are currently on a tracker rate mortgage that follows the base rate, or the lenders standard variable rate mortgage, give us a call and we will happily look at your mortgage options for you to see if we can help you save any money. Likewise, if you are currently on a fixed deal that is coming to an end within the next 6 months, give us a call and we will help you to secure a new competitive mortgage product and rate. So that when your current fixed period ends, you aren’t forced into paying at a rate that you can’t afford.