The Bank of England surprised economists by increasing the base rate to 0.25% at the end of 2021. It has continued to rise at every MPC meeting since!
So could we see another rate rise this year? It’s very likely.
The Bank of England is keen to prevent inflation rising even further, which it forecasts could reach 8% in the Spring. The Bank’s chief economist has warned that more interest rates rises might be needed to curb inflation.
Experts are predicting that the base rate could rise between 1.5% and 2% by the end of 2022.
What does the interest rate increase mean?
More expensive borrowing
Mortgages will become more expensive as the Bank of England interest rate rises.
If you are on a variable rate mortgage deal, your rate will increase in line with the Bank of England’s changes. So if you have a £100,000 mortgage, your repayments are likely to increase by about £12 a month.
If you are on a fixed deal, you won’t be affected by higher interest rates until your deal expires. When it comes to looking for a new deal, you may find rates much higher than when you last fixed.
If you are about to buy a home or remortgage, it might a good idea to opt for a fixed rate deal to lock in a lower rate for the next few years. If you are looking for a mortgage, we work with a preferred partner who are Broadland Consultants Ltd and if you want to check out what deals they have available visit their website www.broadlandconsultants.com.
Better Savings Rates
The good news is that a rise in rates could lead to more competitive savings deals coming onto the market.
If interest rates on savings accounts increase, you can earn more on your money.
So will savings rates go up?
Now that the base rate has increased from its record low, interest rates on savings accounts have been moving up too.
However, never assume the interest on your savings account will automatically increase. It’s important to keep an eye on the best rates on the market so check our guide on the best savings accounts.
At the moment you won’t be able to find a high interest savings account, though you might be able to earn more that 2% interest if you are comfortable locking your money away.
Why do interest rates impact the UK housing market?
Rising interest rates will increase mortgage costs, making repayments more expensive and increasing the overall size of the home loan.
They could also hit house prices. A one percentage point increase in the base rate could reduce prices from between 2% and 11%, according to Sir Jon Cunliffe, the Bank of England’s deputy governor.
However many experts suggests that the UK housing market is robust enough to weather any rise in interest rates, especially with demand outstripping supply.
