Published: 17/08/2023The Bank of England (BoE) has announced an increase of 0.25% to its Base Rate this month. This is the 14th consecutive rise, and has pushed interest rates to 5.25%, which is the highest they’ve been for 15 years.
The Bank keeps raising interest rates to tackle high levels of inflation. The Government sets the Bank a target of 2% inflation, and it was announced that the inflation rate had dropped by 0.8%, to 7.9%, in the month to June. This was a bigger reduction than the markets had predicted, after months of inflation remaining at a stubbornly high level.
And we’ve seen mortgage rates begin to edge down marginally in the last week or so, in response to these better-than-expected inflation figures.
Our mortgage expert, Matt Smith, says: “Today’s rate increase was much anticipated by lenders and has been largely factored into mortgage rates already. As such, we expect mortgage rates to continue to fall slowly over the next few weeks. June’s more positive inflation numbers have given the market renewed confidence that inflation will continue to fall, and that Base Rate won’t have to go as high as previously feared, meaning lenders can tentatively start to reduce rates.”
“All eyes will now look to July’s inflation figures, which will be published in a couple of weeks. More positive news could accelerate rate drops, while any surprises would temper the current renewed market optimism”, Matt adds.
What does the Base Rate increase mean for my current mortgage?
Changes to the Bank’s Base Rate can impact how much interest you’ll pay on loans, including mortgages. If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal. However, if you’re on a variable or tracker mortgage, your payments will almost certainly go up.
If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal. In July, the Mortgage Lenders Charter was launched to help those struggling to meet their monthly payments, as well as borrowers who are coming to an end of their fixed rates soon.
Under the Mortgage Charter, borrowers will be able to lock in a new deal up to six months before your expiring deal ends. You can also request a better like-for-like deal with your lender up to two weeks before your new term starts, if one is available.
When could interest rates start to drop?
The Bank of England’s Monetary Policy Committee meets about every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same.
Right now, it’s thought that we could see Base Rate peak at around 5.75% at the beginning of 2024 and remain at this level for a while, before starting to drop in the second half of the year.
The next decision on interest rates will be announced on 21 September 2023.
Source - Rightmove