Here’s how the interest rate rise to 3.5% could impact your mortgage, whether you’re a homeowner or property investor.
Given most of us are tired of hearing about rising costs, it’s not exactly welcome news to learn that the Bank of England has raised interest rates to their highest level in 14 years. This means the Bank of England base rate has increased for the ninth time in a row. But it’s also important to keep things in perspective – interest rates have been at a historic low recently, ranging between 0.10% to 3%. Now, it’s up to 3.5%* (as of December 2022). There is still very cheap lending on offer, compared to what homeowners were paying just a decade or two ago…
Let’s take a deep dive into the current mortgage market to help you understand what’s going on, what it means for your mortgage - and what you can do.
What is the Bank of England base rate?
Set by the Bank of England, the base rate is a benchmark for the cost of borrowing money. It is important for you to understand because mortgage lenders base the rates they charge on it. So, the Bank of England increasing the base rate will inevitably increase the cost of borrowing.
Why is rising inflation an issue?
Well we’re all acutely aware of the rising energy bills and the increasingly expensive weekly shop. Inflation affects absolutely everything that we pay for. We can measure inflation by small rises like the increase in the cost of groceries or fuel or bills. Manufacturers often pass on the rising costs of labour and materials to the end user which is us, the customer.
To relieve the squeeze of inflation, the Bank of England is trying to lessen the impact by increasing interest rates.
Will rising interest rates mean lower house prices?
It’s difficult to tell. The increase in house prices very much depends upon the supply and demand of property. With the supply of available property so low – and properties in short supply, the increased buyer demand ensures prices remain high. If, however, household finances are continually squeezed then experts do suggest that house prices will have slowed down by the end of the year.
I am a landlord – should I be worried?
No, not at all. Most economists say that inflation is bad for economies but can be good for landlords - especially if the price of your property increases along with inflation. This essentially means that the money you’ve put in bricks and mortar is gaining in value. Rents have also increased dramatically over the past couple of years and they’re now averaging over £1,000 a month**. According to Zoopla, renters are paying £62 more per month*** than at the beginning of the pandemic. So, even with interest rates rising in line with the base rate, there’s still money to be made from property. This is good news for landlords.
What’s your next step?
Well, you have options. It may be possible for you to switch to a new mortgage if your current one isn’t so attractive. This could be worthwhile if there are good deals on the market. However, if you are currently on a fixed rate, the interest rate will not be affected by the interest rate rise. If you are on a fixed rate and decide to try to switch to a different rate you may have an early repayment charge to pay. Our qualified Countrywide Mortgage Services consultants are here to help with access to a range of remortgage options.****