The Bank of England increased interest rates from 3.5% to 4% in response to the inflationary effects of higher-than-anticipated wage increases, putting further strain on homeowners and companies scrambling to pay off their debt.
A majority of the Bank’s monetary policy committee (MPC) said the 0.5 percentage point increase was required after a jump in private sector wages above the central bank’s previous forecasts, despite calls from unions for higher wages to protect against the worst falls in living standards in 100 years.
The UK economy is predicted to shrink in each of the first three quarters of 2023 and 2024 before beginning a moderate recovery.
In addition to the hundreds of thousands of homeowners that refinanced at higher rates in 2022, more than 1.5 million mortgage payers are anticipated to experience an average rise in interest payments of £3,000 per year when they refinance their loans this year.
Renters’ monthly expenses have skyrocketed, and landlords attribute the increases to increasing borrowing costs.
Most homeowners have fixed-rate mortgages, which means their interest rate won’t change for a predetermined amount of time, typically two to five years.
Will you be affected by this change?
If you have a fixed-rate agreement, the base rate change won’t affect you right away; instead, you’ll keep paying the same amount until the end of your set term.
However, you’re very likely to discover that prices have increased when you go to remortgage.
If rising mortgage rates will make it difficult for you to make your payments, you should first speak with your lender.
Your bank might be able to provide assistance by lengthening the term of your mortgage or temporarily cutting payments.
The Treasury Select Committee will question bank executives about why savings account returns have not kept up with reforms at the Bank of England next week.
Currently, the best interest rates are about 4%.