Interest rate jumps again: what does this mean for you?
With many UK adults used to interest rates of less than 1% and low inflation, we look at the effects of the rise in both numbers
Interest rate jumps again in the UK: what this means for you
The Bank of England announced on November 3rd 2022 that the interest rate would rise to 3%, making it the biggest single increase in over 30 years.
This jump could cause a lot of economic change, and could even result in the longest recession recorded in the UK. These changes could also start a ripple effect, so it’s important to keep in the know about what’s going on.
How does this interest rate rise affect me?
Based on a government survey, just under one-third of households in the UK have a mortgage.
According to the Financial Times, around 2 million people in the UK have variable/tracker mortgages; they will have seen their monthly payments jump quite considerably.
Interest rates have been incrementally rising since the pandemic, as the Bank of England tries to combat the surge in inflation. This rise has been fuelled by rising energy and food prices, however the big rise means that anyone who wants to buy a house or is about to remortgage their home will have to pay higher monthly repayments than they would a year ago.
If you have a fixed-rate mortgage …
Not everyone is immediately affected by this in terms of repaying their mortgage; those who have fixed their mortgage rate can avoid these soaring costs for the moment; but when the time comes to remortgage or when their fixed rate period ends, they too could see their payments increase dramatically.
It’s not just mortgage rates that are changing due to the hike in interest rates.
The housing market itself is suffering after Liz Truss announced the mini-budget at the end of September. This caused UK house prices to fall 0.4% in October which, with the cost of living rising in tandem with interest rates, the number of people looking to buy homes has fallen sharply.
The prospects of falling interest rates
It’s not necessarily going to be just a short-term rate rise either, as predictions show that rates could near 5% next year, and hover around there for some time.
This isn’t all just to try and get more money from the public though, the Bank of England puts up the rates to slow down inflation. Of course, such rates, while they feel high, are historically still quite low, as rates have been held artificially lower than the norm since the financial crash in 2008.
Why have interest rates risen?
Interest rates rise and fall for many reasons, usually due to supply and demand of the products which create inflation. The UK’s inflation target is 2%, which allows for wages and prices to rise relative to each other every year. While this is an ideal, in reality it’s not always the case – although we are currently not used to such large price increases.
Factors like the war in Ukraine have recently affected inflation rates, as the price of oil and gas has risen due to supply lines having been cut. Ukraine also used to provide large amounts of cooking oil, wheat, and fertiliser – so food prices have risen too.
Now that Covid restrictions have been largely lifted worldwide, consumers are buying more goods and distributors are struggling to keep up with the demand for products – once more causing prices to spike.
High interest rates – good news for some
It’s not all bad news. Higher interest rates are generally quite helpful if you are looking to save money, as – depending on what type of savings account you have – it can help you to earn a higher interest rate on the savings you already have. And you can always switch your savings to a more lucrative account if you’re not happy with your rate.
However, as we know the downsides of higher interest rates are usually felt more by the poorer in society, especially those who are dependent on borrowing or those who can only just afford their current mortgage payments.
If you are considering purchasing a new home, or remortgaging your current property, it is always advisable to speak to an independent mortgage broker to check the best or most suitable deals on the market.
When you have found your new home Cunningtons can then help with your moving, and try to make the process as smooth as possible.