Bank of England interest rates
During the financial crisis in 2007/2008 the Bank of England (BoE) reduced rates from around 6% down to 0.50% by March 2009. This low rate remained for more than 7 years before the concern over the Brexit vote made the BoE cut the rate to 0.25% in August 2016. Then for the first time in more than a decade the rate went up – but only back to the 0.5% in November 2017. A further rise to 0.75% in August 2018 as the UK economic outlook improved brought rates to their highest for more than decade. But with the arrival of the Covid pandemic two emergency cuts brought rates down to a historic low of 0.1% in March 2021.
But now nine consecutive rises have seen rates reach 3.5% in December 2022. This is the highest level for 14 years. It is important to be aware of these changes and how they will affect your mortgage payments in the future.
Interest rates rises and their impact on lenders
With the BoE interest rate remaining the same for such a long period many lenders were out of practice on reacting to changes. Their activity had been focussed on reducing rates and staying competitive. In a market that saw fixed rate products drop to under 1% for customers with a low loan to value (LTV).
The base rate impacts the cost of borrowing for lenders, and this cost obviously impacts the rates they offer for their fixed rate products. As the BoE base rate consecutively increased lenders who were unused to such rapid change and unsure of the long-term outlook reacted by removing lots of fixed rate products. During the late summer 2022 the fixed rates available were around 4.5% as lenders tried to protect themselves against further predicted increases. With most lenders standard variable rates (SVR) now at around 6% as lenders increased their SVRs with the base rate increases.
What have the changes to interest rates done to the fixed rate products available now?
The increases in interest rates have had a significant impact on the availability of fixed rate mortgage products. With interest rates rising, lenders have become more cautious about offering fixed rate mortgages, as they are unable to predict how long their customers will remain in the fixed rate period. This has led to a reduction in the number of fixed rate mortgages available, as well as an increase in their cost.
If you are worried that the interest rates will increase, then it makes sense to consider a fixed rate product. If you are on a fixed rate product now that is due to end you are extremely likely to see your payments increase as you move on to your lenders SVR. And SVRs are now around 6-7% for the majority of lenders. And with anticipated further changes to the BoE base rate these could increase even higher. The figures below are rough costs of a £100,000 mortgage:
| Rate | Monthly cost (repayment mortgage) |
| 1.5% | Around £400 |
| 5.5% (typical SVR) | Around £615 |
| 6.5% (typical SVR) | Around £675 |
You can use our Mortgage calculator for more accurate figures.
What to expect in 2023 for interest rates
The BoE can change the base rate at Monetary Policy Committee (MPC) meetings. These meetings take place eight times a year, with the next one taking place on 2 February 2023. Although there can also be emergency meetings like those that dropped rate to 0.1% at the start if the Covid pandemic. The base rate is one of the mechanisms that the BoE use to control inflation – which the government sets a target of 2%. And if inflation does not start to fall, the BoE could continue to increase rates. With current inflation rates at more than 10% there are predictions that the BoE base rate will further increase in 2023 and peaking at 4.5% in 2024. One of the big factors in the surge in inflation was due to the cost of energy, but thanks to the UK government’s Energy Price Guarantee and the falling wholesale energy prices this is starting to improve the outlook.
Should I take a fixed rate now?
If you’re wondering whether it’s worth it to lock in a fixed-rate mortgage, this really depends on your circumstances. You need to take account of any early repayment charges when you come to remortgage or buy a new property. When looking to fix a mortgage rate, it is important to consider how long you plan to stay in the property and your own financial situation. If you plan to stay in the property for a long period of time and are comfortable with the risk associated with fixed rate mortgages, then a five-year fixed rate may be a good option. However, if you are likely to move in the near future or are uncomfortable with the risk associated with fixed rates, then a two-year fixed rate may be a better option.
Your monthly budget should be a key factor in your decision-making process. Fixed rate mortgages provide borrowers with the security of knowing that their monthly mortgage payments will remain the same for the duration of the fixed rate period, regardless of any changes to interest rates. This can provide borrowers with peace of mind and certainty when it comes to budgeting for their mortgage payments. Additionally, fixed rate mortgages may offer borrowers lower interest rates than variable rate mortgages, allowing them to save money in the long term.
What Fixed rate options are available?
The number of fixed rates products available has started to return to previous levels and rates have also started to come back down. There are 2 year deals now available for under 4% so based on the £100,000 repayment mortgage this would be around £525 per month. With options for fixing for 5 years and even longer for those that want real security over the amount that they will pay.
However, if you are happy with having a variable rate product and want to have the ability to make overpayments without penalties or limits then moving on to an SVR may suit your circumstances. Whichever option you choose, it is important to shop around to find the best deal for you. Comparing different lenders and products is the best way to ensure that you get the best rate and the deal that best suits your needs.
Using a mortgage broker
The changes to interest rates over the past two years have had an impact on the availability of mortgage products. At one-point fixed rate mortgages became scarce. This makes it more difficult for borrowers to find the right mortgage product for their needs. However, this is where using a mortgage broker can help. A mortgage broker can compare the available mortgage products and help you to find the one that best suits your needs. They can also advise on the best way to manage your mortgage in the long term, ensuring that you are not left out of pocket if interest rates continue to rise.
With interest rates now changing regularly, and with the volatility of the UK economy, mortgage deals are being constantly updated to reflect the rapid changes. This is not something that many homeowners have been used to dealing with in the last 15 years! It’s now truer than ever that you should contact an expert and speak to an experienced mortgage broker for help and advice. They can hold your hand through the entire process, help you understand the impacts of rate rises, the restrictions of fixed products and will ensure the process is as smooth as possible.
Conclusion
We hope that this article has given you some insight into the current interest rates, what we can expect in the future and how this could affect your mortgage payments. Overall, fixed rate mortgages are still available in the UK, but the rate environment and changes to the mortgage market have made them less attractive than they were just 12 months ago. It is important to carefully consider all the options before deciding to fix your mortgage rate and for how long. 177 Mortgages will guide you through the minefield of lenders and product choices without charging you a fee. So, get in touch with us today or take a further look at our guide to remortgaging.