Bank of England Hikes
Back in August the Bank of England increased rates by 0.5% from 1.25% to 1.75% equating to the largest rate hike in 27 years. The Bank of England chose to increase interest rates by 0.5% from 1.75% to 2.25% back in September and the continual illusion it has been introduced to curb inflation is debatable…
Subsequently in the October meeting the BOE opting to hike the rate by a massive 0.75% increasing the current rate from 2.25% to 3.00%.
It seems the invasion of Ukraine by Russia is still being blamed for spiralling fuel costs and energy prices. Using the government calculated inflation figure of just above 11%. The true inflation figure can be calculated simply by looking at the increased cost of consumer outgoings…
- Fuel up 42% (£2.00 per litre)
- Energy costs up 54% (average £300 per month)
- Food on average up 22%
The Bank of England has raised interest rates for an eighth successive time, with the recent hike being the highest in 27 years!
Industry experts estimate that around 40% of mortgages will go up over the next year, so more people will be forced to make higher monthly payments.
According to the BoE, a homeowner with a £250,000 tracker mortgage on a 25-year term will be paying an extra £153 a month after the last September & October rate hikes.
UK inflation is still at an all time high of 11.1%, and the Bank of England still expects prices to top 13% before the end of the year, which is well above its 2% target, this doom and gloom is expected to remain elevated in 2023.
As the central bank battles a slowing economy, the ever-tightening cost of living crisis and rampant inflation, here’s how that affects your mortgages and house prices.
Mortgages
Analysts say the Bank’s move to hike rates by 125bps will “pile more misery” on nearly 2 million people with variable rate mortgages as they battle the rising cost of living.
Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently raised its main interest rate by 0.75 percentage points and US Federal Reserve has rapidly raised rates to a range of 2.5% to 3.25% in September, then hiked again by 0.75 percentage points from 3.25% to 4.00%.
Most economists support such efforts to bring down inflation, but there are growing calls for restraint as economies head for recession and unemployment levels rise, depressing business and consumer spending without the need for further interest rate rises.
Debt charities urged the government to provide further subsidies for low-income households after an increasing number had turned to high-cost credit to keep afloat. The increase in borrowing costs will push up mortgage costs will naturally push up rental costs where the property is owned by landlords.
In addition to raising interest, the MPC also signalled that it would tighten policy accelerating the unwinding the money-creation process known as quantitative easing.
Between 2009 and the start of the pandemic in 2020 the Bank bought £895bn of government and corporate bonds in an attempt to support the economy but is now planning to sell bonds at a rate of £10bn a quarter over the next year.
Further rate rise in December?
Financial markets have pencilled in another 25bp (0.25%) hike in December, with some predicting a pause after that.
What are your thoughts on the continual Bank of England rate hikes?