After a tumultuous couple of months, the Bank of England has made the biggest interest rate rise in decades. With SWAP rates coming down but interest rates increasing, we take a look at how this is likely to impact mortgage rates.
Today’s announcement saw the Bank of England increase the base rate to 3% in an ongoing attempt to curb rising inflation levels. As it stands today, inflation is at 10.1%, which is five times the Bank of England’s target of 2%.
This year, the base rate has increased seven times. This is remarkably unusual, and looking back through the years, we’ve seen the base rate remain at steady levels for long periods of time, and this latest rise is the largest increase in the base rate since 1989 (excluding Black Wednesday). When the pandemic first hit in March 2020, we saw the base rate drop to 0.1%, where it stayed until December 17th, 2021. Since then, the Bank of England has fought to contain ever-increasing inflation, fuelled by the cost-of-living crisis and the impacts of the Russian war against Ukraine. Today’s increase is unlikely to be the last base rate rise for a while, with industry experts confident we can expect a further increase come January.
What will happen to mortgage interest rates?
If you are on a rate that tracks the base rate, we recommend discussing your options with an experienced mortgage broker, as your mortgage repayments will increase. If you are currently on a fixed rate, you can be reassured that your repayments will not change until your fixed period ends. If you are looking at taking out a new fixed rate mortgage or remortgage onto a fixed rate, you are less likely to be impacted, depending on which lender you use. Lenders who receive their funding from the money markets use SWAP rates instead of the base rate to price their fixed rate product ranges. SWAP rates are what lenders pay other financial institutions to acquire fixed money for a set period of time, and lenders will then account for their profit margins when pricing their product ranges.
With the arrival of Jeremy Hunt and Rishi Sunak, confidence in the UK markets has made a recovery, and as such, we have already seen SWAP rates ease slightly. We can therefore expect that fixed rates will begin to calm and return to more manageable levels, albeit not to the lows we have gotten used to post-pandemic.
What does this mean for the rental market?
Looking forward, it’s understandable that many landlords will be concerned about what the future of the UK rental market will bring for their property investments. However, Hamptons, one of the UK’s leading estate agents, anticipate that rental market growth will be at 6% for 2022, dropping just slightly to 5% for 2023 and 2024, then 4% for 2025. The predicted rental market growth for the next three years demonstrates the longevity of property investments for landlords willing to ride through the current tumultuous market.
Please get in touch if you are concerned about your property portfolio or any upcoming purchases or remortgages. Our expert mortgage brokers are here to discuss your property investment plans and concerns and offer support. For free advice, call our brokers on 0345 345 6788 or submit an enquiry here.
3rd November 2022