What does the recent increase in interest rates mean for the UK housing market? (July 2023)

July 12, 2023

What You Need to Know About the UK Interest Rate Increase

The Bank of England’s recent 0.5% increase in the UK base rate – the thirteenth rise in a row – is sure to have a huge impact on homeowners across the country. With inflation failing to fall and core inflation rising, tracker mortgage holders are already feeling the pinch; with their monthly bills increasing every six weeks since December 2021 – higher than any other country in the G7. Homeowners need to be aware of what this means for them and how it will affect their personal finances. This article looks at what you need to know about the UK interest rate increase and how it may affect you.

How will the rising interest rates affect mortgage repayments?

With the Bank of England base rate now at its highest level since 2009, it is crucial for those looking to take out a home loan or mortgage to understand what this could mean for their finances and how best to navigate the situation. The Bank of England has hinted at an increase in order to combat inflation, leaving homeowners wondering how it will impact their monthly payments. The potential rise in rates could mean that many people will struggle to keep up with their mortgage repayments, which could lead to more homes being repossessed. On the other hand, it could also lead to a slowdown in the housing market, as buyers decide to hold off on making a purchase until rates stabilise. Whatever the outcome, it’s clear that it’s a nervous time for the UK mortgage market.

Rising interest rates primarily affect adjustable-rate mortgages (ARMs), as their interest rates fluctuate with the market. However, fixed-rate mortgages, as the name suggests, have an interest rate that remains constant for the life of the loan, regardless of market conditions. This means if you already have a fixed-rate mortgage, a rise in interest rates won’t affect your mortgage payment.
But keep in mind, when your fixed term is over, your mortgage will automatically switch to your lender’s standard variable rate (SVR). This rate follows the Bank of England base rate. If that base rate has gone up, then it’s likely you’ll end up paying a higher interest rate on your mortgage, which could result in bigger monthly payments. Discounted, Tracker, and standard variable rate (SVR) mortgages all have interest rates that can vary over time, and they’re directly influenced by changes in the Bank of England’s base rate.

How can homeowners make the most of this new rise in interest rates?

As interest rates rise, many homeowners may find themselves wondering how they can make the most of this new financial landscape. One strategy is to consider refinancing your mortgage. Refinancing can help you secure a lower interest rate on your home loan, which can save you a significant amount of money over the life of your mortgage. Additionally, taking advantage of rising interest rates means that you may be able to pay down your mortgage more quickly, helping you to build equity in your home and potentially putting you in a stronger financial position in the long run. Another option to consider is investing in home improvement projects that can increase the value of your property, such as renovations or energy-efficient upgrades. With careful planning and a bit of effort, you can make the most of rising interest rates and help secure your financial future as a homeowner.

Want to speak to the team?

From adjustable-rate mortgages feeling the immediate effects of the rate hike to fixed-rate mortgage holders facing potential changes at the end of their term, everyone in the housing market needs to be informed and prepared. Strategies such as refinancing your mortgage or investing in home improvements could help navigate this new financial landscape.

However, these decisions should not be made lightly and professional advice can be invaluable. If you need further assistance understanding what these changes mean for you don’t hesitate to reach out to our mortgage advisor Stephen Bath and secure your financial future in the face of rising interest rates.
Tel: 01743 248351 or 07711206656
Email: stephen@beemortgages.co.uk