Home Mover Mortgage
Jamie Elvin talks all about mortgages for home movers.
The Bank of England has just raised interest rates. What does that mean for mortgages?
The Bank of England’s decision to increase the Bank of England base rate to 4.25% was widely expected given the recent news about rising inflation.
This marks the 11th consecutive time that the Bank of England has raised the base rate, with the rate skyrocketing from record lows of 0.1% to its current level of 4.25% in just 14 months.
This sharp increase means that the base rate is now at its highest level in 14 years.
Whilst the recent increase in the Bank of England base rate may be unwelcome news for some homeowners, it’s important to remember that interest rates are still relatively low compared to historical averages.
What is the Bank of England base rate?
The Bank of England base rate, also known as the Bank rate or the official bank rate, is the interest rate set by the Bank of England that influences the cost of borrowing money in the UK.
It is the rate at which the Bank of England lends money to commercial banks, and is used as a benchmark for other interest rates, such as mortgage rates and savings rates.
Changes in the Bank of England base rate can have a significant impact on the economy, as they can influence the cost of borrowing for businesses and consumers.
The Bank of England adjusts the base rate in response to changes in the economy, such as inflation, economic growth, and unemployment. When the Bank of England raises the base rate, it makes borrowing more expensive, which can help to cool inflation and slow down economic growth.
Conversely, when the Bank of England lowers the base rate, it makes borrowing cheaper, which can stimulate economic activity and encourage growth.
The Bank of England base rate plays a crucial role in the UK’s monetary policy, and is closely watched by economists, policymakers, and financial markets around the world.
Why is rising inflation making mortgage interest rates go up ?
Why is rising inflation making mortgage interest rates go up ?
Rising inflation can cause mortgage interest rates to go up because inflation erodes the purchasing power of money over time.
As inflation rises, the cost of goods and services also goes up, which can lead to higher wages and higher borrowing costs for lenders.
When inflation increases, central banks such as the Bank of England may respond by raising interest rates to cool down the economy and keep inflation under control.
Higher interest rates make borrowing more expensive, which can reduce consumer and business spending and help to slow down inflation.
Mortgage interest rates are influenced by the Bank of England base rate, which is the interest rate at which the Bank of England lends money to commercial banks.
When the Bank of England raises the base rate, this can lead to an increase in mortgage interest rates.
This is because lenders will pass on the increased borrowing costs to their customers in the form of higher mortgage rates.
Will rising interest rates mean lower house prices in the UK?
Rising interest rates can potentially lead to lower house prices in the UK, although the relationship between interest rates and house prices is complex and can be influenced by many factors.
Rising interest rates can make mortgages more expensive, which can reduce the number of potential buyers in the market.
This can lead to a decrease in demand for housing, which can put downward pressure on prices.
Additionally, if people are struggling to make mortgage payments due to higher interest rates, this can lead to an increase in the number of homes being repossessed and put up for sale, which can also contribute to a decrease in prices.
On the other hand, higher interest rates can be a sign of a stronger economy, which can lead to increased demand for housing.
Higher interest rates can lead to a decrease in inflation, which can boost the purchasing power of consumers and make homes more affordable.
In this scenario, higher demand for housing can potentially lead to an increase in prices.
Overall, the relationship between interest rates and house prices is not straightforward and can be influenced by many factors, such as the strength of the economy, the level of demand for housing, and the supply of homes on the market.
I am a landlord – should I be worried?
The prospect of rising interest rates is likely to raise concerns for landlords, as this may lead to increased borrowing costs and potentially lower profit margins.
However, it’s worth noting that rental demand has been on the rise in recent years, which could help to offset some of the impact of higher interest rates.
The demand for rental properties in the UK has been increasing in recent years, driven by a variety of factors such as a lack of affordable housing, changes to the buy-to-let market, and shifting attitudes towards homeownership.
As a result, rents have been rising steadily, with many areas of the country seeing significant increases.
For landlords, this increase in rental demand can be positive, as it can allow them to charge higher rents and potentially offset some of the higher borrowing costs associated with rising interest rates.
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Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
What impact will the Base rate rise have on my mortgage payments?
The 0.25% increase in the Bank of England base rate can have an impact on your mortgage, although the exact impact will depend on the type of mortgage you have.
For borrowers with variable rate mortgages, the interest rate on their mortgage is directly linked to the Bank of England base rate.
As a result, a 0.25% increase in the base rate would lead to an increase in the interest rate on their mortgage, and their monthly mortgage payments would likely go up. For example, if you have a £200,000 mortgage with a variable interest rate of 2%, your monthly payments would increase by approximately £24 per month if the interest rate increased by 0.25%.
For borrowers who are coming off the back of rates below 1%, the increase in monthly payments with the 0.25% rise can be a significant shock.
The Bank of England base rate has increased by 0.25% several times in recent years, and borrowers who have not remortgaged during this time may find that their interest rate has gone up significantly compared to when they first took out their mortgage.
When will interest rates come down?
The Bank of England has a plan to tackle inflation and that the rate rises are not expected to last forever.
The Bank of England’s current inflation target is 2%, and the bank has stated that it expects inflation to remain above this target in the short term before returning to target over the medium term.
The bank has also indicated that it will use a range of tools, including changes to interest rates, to bring inflation back to target.
It’s also true that swap rates have an impact on fixed-rate mortgages.
Swap rates are the rates at which banks borrow money from each other, and they are a key factor in determining the cost of fixed-rate mortgages.
If swap rates are high, then the cost of fixed-rate mortgages will also be high. However, if swap rates are low, then the cost of fixed-rate mortgages will be lower as well.
The Bank of England’s plan to tackle inflation and the current level of swap rates may offer some hope for borrowers with fixed-rate mortgages, as it may mean that fixed-rate mortgage rates may not increase significantly in the short term.
However, it’s important to remember that fixed-rate mortgages are priced based on market expectations of future interest rates, so it’s possible that rates could still increase in the medium to long term.