Bank of England raises interest rates to 2.25%: What does this mean for you?

Here’s how the interest rate rise to 2.25% could impact your mortgage, whether you’re a homeowner or property investor.

Given most of us are tired of hearing about rising costs, it’s not exactly welcome news to learn that the Bank of England has raised interest rates to their highest level in 13 years. This means the England base rate has increased for the seventh time in a row. But it’s also important to keep things in perspective – interest rates have been at a historic low recently, ranging between 0.10% to 1.75%. Now, it’s up to 2.25%* (as of September 2022). There is still very cheap lending on offer, compared to what homeowners were paying just a decade or two ago…

Let’s take a deep dive into the current mortgage market to help you understand what’s going on, what it means for your mortgage - and what you can do.

What is the Bank of England base rate?

Set by the Bank of England, the base rate is a benchmark for the cost of borrowing money. It is important for you to understand because mortgage lenders base the rates they charge on it. So, the Bank of England increasing the base rate will inevitably increase the cost of borrowing.


 

Why is rising inflation an issue?

Well we’re all acutely aware of the rising energy bills and the increasingly expensive weekly shop. Inflation affects absolutely everything that we pay for. We can measure inflation by small rises like the increase in the cost of groceries or fuel or bills. Manufacturers often pass on the rising costs of labour and materials to the end user which is us, the customer.

To relieve the squeeze of inflation, the Bank of England is trying to lessen the impact by increasing interest rates.

Will rising interest rates mean lower house prices?

It’s difficult to tell. The increase in house prices very much depends upon the supply and demand of property. With the supply of available property so low – and properties in short supply, the increased buyer demand ensures prices remain high. If, however, household finances are continually squeezed then experts do suggest that house prices will have slowed down by the end of the year.

I am a landlord – should I be worried?

No, not at all. Most economists say that inflation is bad for economies but can be good for landlords - especially if the price of your property increases along with inflation. This essentially means that the money you’ve put in bricks and mortar is gaining in value. Rents have also increased dramatically over the past couple of years and they’re now averaging over £1,000 a month**. According to Zoopla, renters are paying £62 more per month*** than at the beginning of the pandemic. So, even with interest rates rising in line with the base rate, there’s still money to be made from property. This is good news for landlords.

What’s your next step? 

Well, you have options. It may be possible for you to switch to a new mortgage if your current one isn’t so attractive. This could be worthwhile if there are good deals on the market. However, if you are currently on a fixed rate, the interest rate will not be affected by the interest rate rise. If you are on a fixed rate and decide to try to switch to a different rate you may have an early repayment charge to pay. Our qualified mortgage consultants are here to help and may be able to help you fix at a lower rate than you're current one! If you’d like to lock in a good deal, Countrywide Mortgage Services currently has access to a range of remortgage options.****

What great mortgage deals are available to me?

What great mortgage deals are available to me?

Is there any good news?

Well, yes actually. It’s not all doom and gloom. It’s worth remembering that the more of your mortgage that you have paid off, the better mortgage deal you’ll be able to find. The more equity you have in your home, the lower rate a lender is likely to offer. So, if your home has increased in value, your loan-to-value ratio has probably also risen. This means you could have a greater choice of options from more lenders and end up paying lower rates. We would always advise that you speak to a qualified mortgage advisor if you are unsure which options would be best for your individual circumstances. You can speak to a mortgage professional right now if you like. Book your no obligation appointment today.

*https://www.bbc.co.uk/news/business-62991376 (correct at 22/09/22) **www.rightmove.co.uk/news/rental-price-tracker / ***www.zoopla.co.uk/press/releases/average-uk-rents-approach-1000pcm-62-more-per-month-than-at-the-start-of-the-pandemic-as-increased-cost-of-living-squeezes-house / **** Interest rate correct at 22/09/22.


ALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED.

A BROKER FEE MAY BE PAYABLE UPON MORTGAGE APPLICATION AS WELL AS AN ADMINSTRATION FEE. THE TOTAL FEE PAYABLE WILL DEPEND ON YOUR CIRCUMSTANCES. YOUR MORTGAGE CONSULTANT WILL EXPLAIN ANY FEES APPLICABLE IN YOUR INITIAL APPOINTMENT.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REDEMPTION CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.

Countrywide Mortgage Services and Countrywide Insurance Services are trading names of Countrywide Principal Services Ltd which is authorised and regulated by the Financial Conduct Authority (Firm Registration Number 301684). Registered Office: Countrywide House, 6 Caldecotte Lake Business Park, Caldecotte Lake Drive, Milton Keynes, MK7 8JT. Registered in England no. 01707341. MS/CW/6044/05.22