Why did interest rates increase in the first place?
Interest rates are linked to inflation. As the inflation rate increased to a high of 11% in October 2022, the Bank of England attempted to reduce inflation by increasing the Base Rate which is linked to the interest rate.
Unfortunately, it is often difficult to reduce inflation, even with high interest rates and it is only recently that inflation has dropped below 5%.
The reason inflation has risen so high is due to three reasons according to the Bank of England:
- The COVID pandemic
- The war in Ukraine
- The shortage of workers in the UK
Two of these events affected the whole world, with the shortage of workers in the UK the only ‘local’ reason for increased inflation. However, it is linked to the pandemic as, even with government assistance in the furlough scheme, workers lost their jobs and the cost of rehiring them partly contributed to the increase in inflation.
When will the interest rates start to decrease?
Over the past two years, the Base Rate has experienced a meteoric rise from a mere 0.1% in November 2021 to the current 5.25%. This vigorous upward trajectory, aimed at curbing inflation, has catapulted mortgage rates skyward. The Bank of England projects a gradual reduction, foreseeing rates reaching 4.25% by the close of 2026.
For interest rates to decrease the UK requires a sustained period of stability. However, with global risks such as Middle East conflicts and potential oil price surges, the spectre of unexpected inflation spikes may still be on the horizon.
What does this mean for homeowners?
For those contemplating a remortgage as their current mortgage term nears completion, strategic diligence is advised. Homeowners should rigorously research mortgage providers to secure the most favourable deal, particularly as the market continues its upward trajectory.
Ensuring a fixed rate in these uncertain times can shield borrowers from the perils of variable rates that can escalate well beyond 8% or even 9%.
Read more: How Does the Interest Rate Affect My Mortgage?
Does this mean repossessions will decrease?
Unfortunately, probably not. Many homeowners who purchased a home at a fixed rate are likely to have ended or are nearing the end of their fixed-rate deal. Remortgaging their home will be significantly more expensive and with the cost of living crisis homeowners easily fall into arrears.
Repossessions have significantly increased according to the latest statistics from the government.
If you are going through a home repossession then speak to the experts. HMS is a repossession help service for homeowners served mortgage possession orders or are required to attend a repossession court hearing.
Speak to our experts today and stop the repossession of your home.