Interest rate rise to 2.25%
A few weeks ago, the Bank of England announced interest rates in the UK would rise to 1.75% as of October 2022. They have now released an update, stating another increase with rates jumping a further 0.5% to 2.25%.
This week lenders including Santander, HSBC and NatWest have also increased their base interest rates, presumably in anticipation of the outcome of the Bank of England vote.
This will leave new borrowers and anyone on a standard variable rate facing steeper interest rates – up to 0.8% higher than they would have been only one week ago in some cases.*
In a previous blog, we reported that UK interest rates were predicted to increase to more than 3% as of December. With this latest announcement, this seems an even more likely possibility.
On this page we will explain what the Bank of England has announced, how this may impact your mortgage and ways you can combat these potential price increases.
Bank of England interest rate
The Bank of England has been keeping a careful eye on rapidly rising inflation in the UK and has put interest rate rises in place accordingly. This is a measure to try and stabilise the economy as much as possible.
They have now announced that rather than the previously announced October rate increase from 1.25% to 1.75%, UK interest rates will go up to 2.25%. This is a full percentage point higher than before and a figure that is at a 14 year high.
This news will have an impact on borrowers with any type of loan or credit agreement, meaning it would be wise to review any you already have in place.
It is also advisable to be cautious and assess all your options before taking out more loans, ensuring you secure the best rates you can. Comparison between lenders is often the best way to find the most reasonable repayment rates available.
Is the UK in a recession?
Interest rates have risen to the highest level since 2008 and inflation has soared to a 40 year high, meaning UK residents may be understandably concerned. Increase upon increase has led to speculation as to whether we are now in a recession.
After the economy has shrunk for two consecutive quarters, the Bank of England have stated the UK is now expected to enter a recession. They previously predicted 1% economic growth between July and September but now shrinking by 0.1% is a far more likely outcome.
Whilst this is not great news, the government have over the last several months announced several financial support schemes. This includes measures such as support payments for vulnerable members of society (elderly, disabled etc.) in an attempt to help them with the rising cost of living.
With a recession now confirmed, support schemes, careful budgeting and financial planning could be key to ensuring you do not risk falling into struggles with bill paying or even debt.
If significant debt has already begun building, you may be able to consolidate your payments if you already have a mortgage on a property. This can be a great option to relieve some financial pressure in a difficult time.
For more information on remortgaging for debt consolidation CLICK HERE.
Mortgage interest rates rising
With lenders raising their base interest rates in line with Bank of England increases, this will have a notable impact on anyone with a current variable rate or tracker rate mortgage. It will also of course cause higher costs for anyone looking to take out a new mortgage as well.
Anyone considering taking out a mortgage is best to start this process sooner rather than later. With continuous price increases over the last year, securing a mortgage now could see you end up with a significantly more favourable rate than if you wait.
With further rises looking inevitable, our advice to anyone with a current mortgage would be to consider remortgaging. Switching to a fixed rate from a variable rate now may help you avoid any more increases to your repayment amounts for the time being.
Another lender may be able to offer you more favourable rates and set period on a fixed rate will allow you some peace of mind. The agreed rate will be in place for a set amount of time, usually 2, 5 or 10 years, giving you more financial security moving forwards.
Even if already on a fixed rate, it is still worth checking what other deals are available on the market. This is especially true if coming towards the end of your deal, where you would automatically switch to your lender’s standard variable rate.
For more information about fixed rate mortgages CLICK HERE.
Review your mortgage deal
Reviewing your mortgage regularly can reveal the potential for savings, either through your own lender or a new one. Comparing prices and mortgage terms may lead you to a deal far more suitable, especially if now on a tighter budget.
If remortgaging seems a good option for your finances but you’re unsure how to start the process, speak to a mortgage specialist for expert advice.
For more information on the process of remortgaging a property CLICK HERE.
*according to the Guardian