On Thursday, 17th March 2022, the Bank of England announced that interest rates would increase to 0.75%. Naturally, borrowers across the United Kingdom are keen to know how this will impact them and their monthly outgoings.
Key points of the increase:
- The March 2022 base rate increase represents the third Bank of England base rate rise since December 2021
- The base rate now stands up at 0.75%
- Mortgage holders face paying more each month
Why has the Bank of England increased interest rates again?
The media is reporting the Bank of England has increased interest rates to tackle the rising rate of inflation.
As of January 2022, inflation stood at 5.5%. The Government target for inflation is 2%, so something needs to be done. Of course, not everyone agrees with the strategy of increasing interest rates to tackle inflation.
With inflation at 5.5 per cent as of January and expected to peak over the coming months, the government’s 2 per cent inflation target is far from being met.
The Bank of England said; “The effects of Russia’s invasion of Ukraine would likely accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”.
Will mortgage holders be affected?
Any homeowner who holds a fixed-rate mortgage will be protected from price increases if their deal is in place. So, the most concerned homeowners are those who have a Standard Variable Rate (SVR) or lender revert rate mortgage.
Your lender will inform you how much they intend to pass on the rate increase. Some mortgage holders might find their lender only passes on some of the interest rate. Most will find that the full rate is passed on to them.
Mortgage holders with a tracker rate mortgage will likely see the total rate passed on to their mortgage.
Mortgage holders should expect an increase to be in place for their next mortgage payment. The increase is applicable from Thursday 17th March.
Will the cost of mortgages increase?
While mortgage lenders have tried to support applicants and mortgage holders as much as possible of late, they might not be able to maintain good deals going forward.
Andrew Wishart, a UK economist at Capital Economics, spoke about this matter. Andrew said; “We expect a sharp rise in mortgage rates over the next 12 months. Based on our forecast that Bank Rate will rise to 1.25% by year-end and to 2.00% in 2023, the average rate on new mortgages is set to double from a low of 1.5% in November 2021 to almost 3.0% in 2023.”
Many people face financial challenges
It is fair to say the start of 2022 has been a difficult one for many households with respect to finances. Some critical issues facing people now, or soon, include:
- Significant energy price rises
- An increase in the general cost of living
- A forthcoming increase in National Insurance payments
- The increase in Bank of England interest rates affecting mortgage payments
It is not as though an increase in interest rates only affect mortgage holders or people looking to buy a home. If the rise leads to landlords paying more each month on their buy-to-let mortgage, tenants will likely pay more in rent.
What can be done?
No matter what position a person is in, it makes sense to review their finances carefully. The advice of a professional or expert could be invaluable. Given mortgage payments are the most significant outlay for most houses and the most important expenditure, and it is sensible to speak with a trusted advisor on these matters.
How to explore your mortgage options with The Money Hub
If news of the latest base rate increase has you looking for guidance on what is the best mortgage for you, help is available.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.