Date Published 23 June 2023
Once again, the Bank of England has raised the interest rates from 4.5% to 5%. This is a steep rise which risks driving the economy into recession. For mortgage holders they are bracing for more financial difficulty as experts predict this could rise to 6% by the end of the year. Rates are now at their highest level since the 2008 financial crisis where the rates were at 5.75%.
Thursday's interest rates are bad news for more than 1.4 million people on a variable-rate residential mortgage. Roughly half are either on a base-rate tracker or discounted-rate deal, with the remaining 50% or so on their lender's standard variable rate (SVR). A household with a tracker mortgage currently at 5.5% will see their pay rate rise to 6%. With the Prime Minister under fire over the soaring cost of borrowing, the central bank pushed through a half-point hike, deploying what economists described as 'shock and awe' tactics.
With anyone looking for a new fixed-rate home loan the past few months have been a horrible time whether it is to buy their first property or to replace a deal that is coming to an end. This latest inflation figures only increased the market turmoil that had already led to hundreds of mortgage products being pulled or re-priced.
Alongside the interest rate, the headline rate of inflation in the UK remained at 8.7% in the year to May, the same figure as April. Rising prices for air travel, recreational and cultural goods and services were blamed for the largest individual price rises; food and non-alcoholic beverages costs rose in May as well, but by less than in May 2022.
However, for core figures which includes energy, food, alcohol, and tobacco rose by 7.1% in the year to May. This substantial increase is the highest since March 1992 and they carry the most weight when the Bank of England looks at the state of the economy.
