The Bank of England has increased the Base Rate for the first time in 2023, and the tenth time since December 2021. As the cost-of-living crisis continues, many will wonder what we can expect from mortgage interest rates this year.
Last year, the Bank of England increased the Base Rate eight times to curb rising inflation levels and mitigate the cost-of-living crisis, energy bill hikes, and the war in Ukraine. The mortgage market subsequently saw interest rates rising at a steady pace, until Kwasi Kwarteng’s mini-budget meant an unprecedented jump in mortgage rate pricing.
Based on today’s announcement, industry experts expect a much more positive outlook for 2023. The Base Rate (BBR) now sits at 4%, and the general consensus is that there will be one further rise in March to 4.25%, and then to remain at this level for the foreseeable future. As such, this it’s a much more optimistic situation for the money markets and mortgage markets alike.
Just a few months ago, economists were forecasting the Base Rate to peak at 6% this year. What’s reassuring for landlords and property investors is this shows that the staggered Base Rate rises have helped to steady the money markets; therefore, we are unlikely to see more pricing increases to mortgage rates.
What does this mean for mortgage rates in 2023?
What we can expect going forward for the mortgage market is that rates will stabilise around their current levels, giving property investors the opportunity to get back on track after what can only be described as a tumultuous year.
With this positive outcome and economists now evaluating that the recession will not hit the markets as badly as anticipated, landlords will now be able to reclaim some control over their property investments. Despite the prediction that we may see one further Base Rate rise this year, we have likely seen the peak for fixed-rate mortgages. Although interest rates have risen since October 2022, the average cost of a two-year and five-year mortgage products have fallen by around 1.2% and 1.5% respectively since then. Looking closely at swap rates, we have also seen a decrease of 150 basis points since their peak in October last year.
While this increase in BBR will likely have little to no impact on fixed-rate mortgages, those of you on BBR tracker rates may want to reconsider your options. With BBR at 4%, many of these rates will likely now be higher than a lot of fixed-rate counterparts. Likewise, those sitting on lender standard variable rates (SVRs) that track BBR will see monthly repayment increase following this announcement. Currently, some of the most popular specialist lenders have SVRs between 5.49% to 9.58%, but these could increase by 0.5% following today’s announcement. Speak to our expert team to review your property finance choices today.
It is also expected that lenders will continue tightening their affordability criteria. If you are concerned about how this could impact your next mortgage application, please get in touch with one of our whole-of-market mortgage brokers. Our expertise and experience make us best placed to support you with your property investments.
You can speak to one of our brokers by calling us on 0345 345 6788, or by submitting an enquiry here. You can also stay up to date with all of the latest industry news by subscribing to our weekly investor update here.
2nd February 2023