The Bank of England increased interest rates

Posted by w3asif On May 22nd 2023

The Bank of England increased interest rates from 4.25% to 4.50% in May, the 12th rise since December 2021 when the rate was 0.1%. This brings the Bank rate to its highest level since 2008 and raises borrowing costs. The next rate decision will be announced on June 22, 2023.

Mortgage rates surged after last September’s mini-Budget, causing market uncertainty and a drop in the pound’s value. Major lenders like NatWest, Barclays, Halifax, and Virgin Money withdrew deals and reintroduced them at higher prices. While mortgage costs have since corrected, lenders have gradually increased rates as interest rates continue to rise.

The average cost of a two-year fixed rate deal is 4.74%, a three-year deal is 4.59%, and a five-year deal is 4.45%. These rates are lower compared to the peak of over 6.50% in October 2022. The most competitive deals currently available are 3.78% for a two-year fix, 4.17% for a three-year, and 3.89% for a five-year. The best 10-year fixed rate stands at 4.39%. The average two-year tracker rate is 5.00%, with the leading deal priced at 4.65%. The typical standard variable rate (SVR) is 7.26%, up from 4.53% a year ago in May 2022.

As of May, there are 5,264 residential mortgage deals on the market, an increase from 4,372 at the beginning of last month and nearing the 5,300 recorded in December 2021. The number of available mortgages had dropped to around 2,560 following last Autumn’s mini-Budget.

With the recent Bank rate increase to 4.50%, homeowners on variable rate deals will experience an immediate rise in monthly repayments. For example, a tracker rate increase from 4.75% to 5% would result in an additional £30 per month on a £200,000 loan over 25 years. Fixed-rate deal holders won’t see a change in their monthly payments but will likely face more expensive options when their current deal ends.

Halifax’s latest house price report indicates a slowdown in annual house price inflation to 0.1% in April, while Nationwide reported a 2.7% decrease in prices over the past year but a 0.5% increase month-on-month. Rightmove states that the average cost of a home listed for sale in April is £366,247, up 1.7% from last year and 0.2% from last month.

The Bank of England raises interest rates to cool the economy and control rising inflation. The Consumer Prices Index (CPI) inflation measure reached 10.1% in the 12 months to March, higher than the expected 9.8%. Rising costs in the food sector contributed to this inflation. The government’s inflation target for the Bank of England is 2%.

The rising cost of energy is one of the main drivers behind increasing inflation. The energy price cap set by regulator Ofgem stands at £3,280 since April 1, 2023, but the government’s Energy Price Guarantee (EPG) of £2,500 is currently in effect until the end of June. The EPG was originally set to increase to £3,000 from April but was extended to provide relief from escalating energy costs.



Please feel free to contact us if you need further information.