Interest Rate Increase
June 23, 2023 12:37 pm
The Bank of England (BoE) recently raised its Base Rate by 0.5%, marking the 13th consecutive increase and bringing interest rates to 5%, the highest they’ve been in 15 years. This move by the Bank is aimed at addressing the persistent high levels of inflation. Despite efforts, the inflation rate remains at 8.7% in May, which exceeds the government’s target of 2%.
The 0.5% increase in the Base Rate is higher than the previous 0.25% rises and was larger than some experts had predicted. The Bank’s decision indicates an attempt to tackle the underlying issues driving inflation, with a forecast of a significant drop in inflation during the second half of the year.
The impact of this decision on swap rates, which directly influence mortgage interest rates, remains to be seen. If the markets respond positively to this news, it is expected that stability will return to the mortgage market, benefiting those planning to take out a mortgage in the near future.
Mortgage rates have been rising in recent weeks in anticipation of a Base Rate increase. Lenders determine fixed-rate mortgage rates based on the expected future Base Rate, known as “swap rates.” Lenders have already increased fixed-rate mortgages significantly in preparation for the Base Rate rise.
Rightmove report that there has been an increase in the number of people enquiring about homes for sale compared to 2019. We are also seeing an increase in the number of properties coming to the market and instructions are up year on year.
The market in Formby remains buoyant but we will need to wait and see what happens over the next few weeks to see what impact this latest increase has.
Hopefully, falling inflation rates over the next few months will reduce the pressure on the BoE and we might see rates start to come down. Fingers crossed!
Visits to mortgage services have also risen, indicating that higher interest rates are prompting individuals to reassess their budgets and evaluate their personal affordability rather than delaying their plans.
If you have a fixed-rate mortgage, your monthly payments will remain unchanged until the end of your deal. However, if you have a variable or tracker mortgage, your payments will likely increase in response to the Base Rate increase.
There are expectations that the Base Rate could peak around 5.75% before starting to decline. The Bank of England’s Monetary Policy Committee meets regularly to discuss and decide on whether to raise, lower, or maintain interest rates. The next decision on interest rates is scheduled for August 3, 2023.