It’s official: The interest base rate has been raised from 1.75% to 2.25%. The Bank of England’s Monetary Policy Committee voted last Thursday, 22 September, to raise the interest base rate by 0.50%.
This is the second consecutive time that the rate was increased by 0.5%. Likewise, September is also the seventh consecutive month that the Bank of England (BoE) made the interest base rate increase. Check this previous article for more.
Combatting The 2% Inflation Rate With A 2.25% Interest Base Rate Increase
According to the Bank of England, the increase of 0.5% was intended to meet the 2% inflation target. This was also done to help to sustain growth and employment.
The Committee noted that based on its August Monetary Policy Report, the impact of wholesale gas prices was a key consideration. Wholesale gas prices have been increasing dramatically since May 2022, impacting UK household incomes. Because of the reduced incomes, UK households have had to reduce their spending as well, resulting in CPI inflation.
Because of these, the Committee voted to increase Bank Rate by 0.5 percentage points, to 2.25%, at this meeting.
Five members voted to increase the interest base rate to 0.5%. Three members were in favour of 0.75%, and one member voted for an increase of 0.25%.
The UK Is Officially In A Recession
The Bank of England has also confirmed that the UK economy is in recession. The BoE states that based on the ONS’s first quarterly estimate, UK GDP had fallen by 0.1% in 2022 Q2. This was better than the Committee’s projection of a 0.2% negative GDP growth.
However, more sombre news is coming as the BoE is now expecting GDP to fall by 0.1% in Q3. This negative GDP will make it the second consecutive quarterly decline. It falls far below the Committee’s August Report projection of 0.4% growth.
In a similar way, the US experienced two consecutive quarters of negative GDP growth. This happened in the first half of 2022. Two consecutive quarters of negative growth technically put a country in a recession. Read this article to learn more.
What Does This Latest Interest Base Rate Increase Mean For The Housing Market?
This interest base rate increase has immediate consequences for property investors and first-time home buyers. First, the initial effect will be on your current mortgages. If you are on a fixed-rate deal, you won’t be affected by this increase.
At least until your deal expires. When you are looking to remortgage, expect to find rates much higher than on your previous deal.
It’s advisable to lock in the new rate now if your fixed deal ends in the next three months (especially if your mortgage lender is offering a special on it).
If you’re leaving your current deal, make sure that you have enough to cover any fees that may be added on, or new fees if you’re switching to a new lender.
The Interest Base Rate Increase Will Have A Ripple Effect On Mortgage Interest Rates
Second, the 0.5% interest base rate increase means that a typical homeowner will be paying more per month.
This latest increase could add £600 a year or £49 per month for people who have variable rate mortgages. This increase will be on top of the average cost of variable rate mortgages.
However, it is crucial to ask your mortgage or bank lender because in some cases (and let’s hope it’s not you), rates may be different and it may be more expensive.
What does this mean for property investors? For now, learn more about the current updates in the housing market, especially in the private rented sector. If you want to get more information and property investment education, book a chat with us today or call us on 02079236100.