What's happening with Mortgage Rates?

Catherine Alexander
Partner

Just when we thought we had reached the peak in terms of interest rate rises, the Bank of England raised interest rates in May from 4.25% to 4.50%. This was the 12th rise since December 2021 and puts the base rate at its highest since 2008. The last time the Monetary Policy Committee (MPC) met, there was an expectation that there could be a further rate rise, and now we must wait to find out if a further rise may be necessary before we see more stability. The next rate decision will be announced on 22nd June 2023.

The majority of mortgage lenders undertook a correction exercise with their rates after last September's mini-Budget, factoring in the rate rises, but as interest rates have continued to climb we have seen lenders increasing the cost of mortgage products in recent weeks. At the moment rates seem to be rising across the board on a daily basis. However, they are still well below the highs seen post mini-Budget of circa 6%.

The MPC uses interest rates to control inflation, and although the Consumer Prices Index (CPI) fell to 8.7% in the 12 months to April 2023, this is still far off the 2% government target. This is largely due to rising costs in the food sector.

If you are on a variable rate deal, you will see an almost immediate rise in your monthly repayments with any base rate increase. If you are on a fixed-rate deal, you won’t see any difference in your monthly payments with a base rate increase. However, when the deal expires, available mortgage deals are likely to be much more expensive.

The MPC's updated projections for activity and inflation are for the Bank Rate to peak at around 4.75% in 2023 Q4 before ending the forecast period at just over 3.5%. This is obviously dependant on inflation being brought under control, but a decrease would inject stability into the market, opening up increased competition and decreasing mortgage rates. The pace at which domestic inflationary pressures ease will depend on economic evolution. Uncertainties around the global financial and economic outlook remain elevated.

References:
Bank of England Website: https://www.bankofengland.co.uk/

This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage.