The Bank of England's decision to raise the rate from 2.25% to 3% will have an impact on mortgage holders, home buyers, and savers.
The most recent interest rate hike will have a particularly negative short-term impact on homeowners with Standard Variable Rates or tracker mortgages. After a period of extremely low interest rates, many homeowners now risk having to make significantly more expensive monthly payments.
As a result of the Bank's rate increase from 2.25% to 3%, customers with ordinary tracker mortgages will now pay an additional £73.50 each month. Mortgage holders with normal variable rates would see a £46 increase. According to analysts, rates could rise to 4.75% in 2019.
However, that peak is lower than forecasts had indicated a few weeks prior, when the administration was in disarray following the rejection of its mini-Budget.
Marcus Dixon, director of UK residential research at JLL, stated: “A further rise in the base rate, while uncomfortable for those not locked into fixed rates, was not unexpected. With it being more a question of when rather than if rates would rise. This will of course impact the housing market, albeit this increase was likely already priced into new fixed rates deals and market forecasts. The MPC announcement does not change our outlook.
He added that “JLL is forecasting that higher interest rates, combined with the winding down of the Help to Buy scheme, will mean we see a 30% fall in transactions in 2023 compared with 2022, around 300,000 fewer sales nationally. JLL is forecasting prices will fall too, by 6% UK wide in 2023, following a strong performance this year. But not all areas will perform in the same way. Markets less burdened by debt, with a higher proportion of cash purchasers, are expected to be better insulated, central London for example is forecast to see a 2.5% increase in prices next year.”