Bank of England Increases
The Bank of England (BOE) has increased rates by 0.25% for the first time since August 2023 with inflation increasing towards 4%. Members voted 8-1 to increase rates by 0.25%.
The ongoing impact of the Iran war, primarily on the cost of energy and fuel, has filtered through to the UK inflation rate. Millions of domestic energy customers are braced for a hefty rise in prices in January.
A 0.25 percentage point rise would mean a £31 increase in monthly repayments for someone with a typical tracker home loan, according to calculations by banking trade body UK Finance.
The 470,000 mortgage-holders on variable deals would need to wait for their lender’s reaction to any Bank rate rise. Typically, a 0.25 percentage point rise would mean a £14 increase per month in repayments.
Inflation fell sharply to 3.20% and is still expected to settle back around 2% shortly after.
Future uncertainty with Trump’s tariffs has contributed to the bank of england reducing interest rates. this is just ahead of the UK-US trade deal announcement, citing weaker growth and easing inflation due to higher tariffs….
Mortgages
As of 4 November, the average two-year fixed residential mortgage rate was 5.96%, while the average five-year rate stood at 5.99%, according to financial information service Moneyfacts.
It means anyone rolling off a five-year deal faces a much bigger mortgage bill.
Broker L&C said that average mortgage rates offered by the 10 biggest lenders suggested some borrowers now faced paying almost £5,000 more each year in repayments on a £200,000 mortgage over 25 years than those who secured a remortgage deal in 2021.
Five years ago, the average five-year fixed remortgage rate among the 10 biggest lenders was 1.30%.
Relatively high fixed rates have prompted some people to consider choosing trackers, in the hope that the rate would be lower, even if the Bank rate rises in the coming months.
The cost of some other new loans could be influenced by the Bank rate.
Savers, on the flip side, could see the interest rates offered to them improve in light of any rise in the Bank rate.
Ultimately, lenders – as well as policymakers at the Bank of England – are having to judge what may happen to the UK’s economic outlook which is highly connected to changes in international events.
Further rate increase in December?
Financial markets have pencilled in another increase in December, provided inflation continues to increase.
What are your thoughts on the Bank of England rate increases?
