The Bank of England (BoE) has recently revealed a 0.25% increment in its Base Rate, marking the 12th consecutive rise and taking interest rates to a 15-year high of 4.5%. The primary aim of these progressive increases is to mitigate the high inflation levels currently plaguing the UK economy, which stood at an unexpected 10.1% in the 12 months to March 2023, notably higher than the government's 2% target.
However, in its Monetary Policy Committee's analysis, the BoE anticipates a swift reduction in inflation, predicting it to drop to approximately 5% by the end of the year and reach the 2% target by late 2024. Although some costs, such as food, may rise faster, energy bills are expected to decrease due to recent substantial falls in gas prices.
The Bank's predictions align with financial market forecasts, suggesting a Base Rate peak around 4.75% in the fall. Barring any unanticipated economic shocks, the rates are likely to hover around the current level for some time before gradually declining.
How will the recent interest rate increase affect your mortgage rates?
In the weeks leading up to the Base Rate hitting 4.5%, average fixed-rate mortgage rates have seen a gradual increase. This Base Rate significantly influences lenders when setting their fixed-rate mortgages, which are based on the market's projected Base Rate for future periods, known as 'swap rates'.
As at the 10th May 2023, the average a five-year fixed 85% Loan-To-Value (LTV) mortgage rate stood at 4.52%, a slight increase from previous week's 4.44%*.
Are you a first-time buyer?
Demand from potential homeowners, particularly first-time buyers, has surpassed pre-pandemic levels. This surge is likely to result in lenders staying competitive to accommodate this demand.
How will the Base Rate increase affect your current mortgage?
The Bank’s Base Rate changes can influence the interest on loans, including mortgages. Fixed-rate deals will remain unchanged until the deal ends. However, those on variable or tracker mortgages will likely see an increase.
The next Bank of England’s interest rate announcement is expected on Thursday 22 June.
For more information on how these changes might affect your financial situation or to discuss your mortgage options, please don't hesitate to reach out to us at Steel & Co Financial. Our team of experts is here to guide you through these changing times.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured against it. We charge a broker fee for advice. The amount of the fee will depend upon your circumstances.
Steel & Co Financial Services is a trading style of Steel & Co (East Anglia) Financial Services Ltd, an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales no: 10146851. Registered address: 61 Alexandra Road, Lowestoft, Suffolk NR32 1PL.
*https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/