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MPO Interest Rate Forecast

We're constantly reviewing the situation with interest rates to keep you up to date

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 1 February 2023

6 min read

MPO Interest Rate Forecast

Here’s our latest MPO mortgage interest rate predictions for 2023 and beyond. 

What’s going to happen to interest rates? Will they go up or could they even come down? 

We’re constantly reviewing the situation with the mortgage interest rates and Bank of England (BoE) Base Rate to keep you updated on the latest predictions. There’s no doubt that the current period is one of the most unusual and uncertain times that we’ve seen in many years. 

Some newer borrowers may not have experienced periods like this and interest rates at these levels before. The fact still remains, the current rates of interest and inflation are still below previous normal levels of around 5% between the early 90’s and 00’s. 

Previous highs have been as much as 17% in the early 80’s and up to 15% in the latter end of the 80’s, which was a particularly difficult period in the UK economy. 

The recent sharp rise to the BoE Base Rate since the end of 2021 has been a shock to many households, leading to a lot of concern and uncertainty. 

SUMMARY: The latest review of the Bank of England (BoE) Base Rate by the Monetary Policy Committee (MPC) took place on 15th December 2022. 

What’s going to happen next with interest rates? 

The latest measures have been put in place by the Monetary Policy Committee (MPC) in an attempt to counteract the rising levels of inflation in the UK. The current rate of inflation (Consumer Price Index) is 10.7% which is far higher than the target of 2%. 

The current increase to the CPI has been primarily down to a spike in the cost of living in the UK. We’ve all noticed significant increases to the cost of fuel, energy prices and general household bills, such as groceries. 

The MPC is currently working towards a period of more settled interest rates and reducing the overall levels of inflation in the UK. This plan is likely to last for a period of several years, where we will see some fluctuations in interest rates and inflation. 

When will interest rates come down again? 

There are a few different opinions on what is likely to happen to interest rates in the UK and when they are likely to start to come down again. 

The most popular opinions suggest that the BoE will increase the Base Rate by a further 1% to around 4.5 to 4.7% in 2023. It is then suggested that rates will come down to around 3.5% again towards the end of 2023 potentially. 

All predictions are purely that and there is clearly the option that UK interest rates may continue to increase beyond 4.5%. 

Investment markets are predicting that interest rates will start to fall again towards the end of 2023, assuming that inflation rates stabilise. 

High inflation and interest rates can affect things from house prices, mortgages, credit card repayments and more so it is best to keep yourself well informed of any potential changes.

Read more about house prices, what can affect them and more in our guide ‘House price predictions 2023’.

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There are many different opinions and schools of thought on this, but there is nothing to suggest that mortgage rates will drop again in the near future. 

Most mortgage lenders are currently offering 2 year fixed rate deals of between 5% and 6% depending on your Loan to Value (LTV). This appears to now be the normal levels and we expect this to remain the same for the foreseeable future. 

There are still some good deals around for certain borrowers and with certain lenders, but obviously these are significantly higher rates than deals before 2021. 

Learn more about fixed rate mortgages in our MPO fixed rate mortgage guide.

How often does the Bank of England (BoE) Base Rate change? 

Usually, the Monetary Policy Committee (MPC) will meet every six weeks, at which point they will review and change the BoE Base Rate. 

There are usually nine members to the MPC and to change the BoE Base Rate, there needs to be a majority vote. This means that almost all members need to agree before any increase to the BoE Base Rate can take effect. 

Number of BoE Base Rate changes: Eight times per year (usually) 

What are the signs that the interest rates will change? 

There are several key economic indicators that will be used to decide what will happen to the interest rates. It is possible to understand some of these indicators to be able to predict the likely outcome of an interest rate review. 

Here are some of the most common signs and indicators that are used: 

  • Inflation rates (Consumer Price Index) is one of the biggest and most important indicators that will form part of any interest rate review. The current inflation rates of over 10% mean that it is highly likely that the BoE Base Rate will continue to rise until inflation levels and drops again. 
  • Unemployment rates have continued to grow in the UK and are now higher than the previous low levels of around 3.5%. The final quarter of 2022 saw a consistent increase in the levels of unemployment which can be an indicator that interest rate rises are less likely to happen. 
  • Support for lower interest rates has almost completely gone from the MPC with an unprecedented nine consecutive increases to the BoE Base Rate. Previously there was a resistance within the MPC to increase interest rates and for the BoE to remain at lower levels. The majority of the MPC has recently voted as a resounding majority for an increase to the Base Rate to increase consistently. 
  • UK economy moving to recession for the first time since 2007 to 2009 where we previously saw a crash to the global mortgage and financial markets. The UK economy has seen record levels of decline in recent years, which all points towards a period of recession.

What should I do next? 

You always have the option to switch or transfer your existing mortgage deal, but the benefits can be outweighed by costs (e.g. Early Repayment Charges). 

Some lenders will allow you to secure a new mortgage deal or interest rate up to 7 months before an existing deal expires. It can be beneficial to lock in a new deal well before the end of your existing deal, especially in the current climate. 

You can speak to a qualified mortgage advisor to get a review on your existing mortgage deal and find out what your options are. These reviews will give you an opportunity to discuss your future needs and financial goals to find out what is available. 

If you’re considering switching your lender or mortgage, you can learn more about this process in our ‘MPO Guide to remortgaging in 2023’.

We also cover the advantages and disadvantages in more detail in our guide ‘Pros and Cons of remortgaging’.

Finding the best mortgage deals 

It’s important to make sure that you get the right deal if you’re switching or transferring your mortgage to a new rate. You could save thousands over a short period if you get the best deal for you and your circumstances. 

Some of the main things to consider when reviewing your mortgage are: 

  • Speak to a qualified mortgage advisor who can tell you what deals are available and what your options are based on your needs and circumstances. 
  • Compare rates and deals from different mortgage lenders by speaking to a broker who has access to multiple lenders. Essential Mortgages has over 50 lenders with thousands of different deals so you have more options with them. 
  • How does your credit score look currently and are you in a good place financially to review your current mortgage deal. It is always best to review your mortgage at a time where your credit history is more positive and your score is higher. 

Find out more in our guide ‘How to find the right mortgage deals’.

Get a free mortgage review 

You can speak to an independent mortgage advisor for a free mortgage review to help you to understand your options. 

If you have any questions about your existing mortgage deal or what to do next then you can contact the above link for a free review from a qualified mortgage broker. 

You can secure a new mortgage deal up to 6 months before your existing deal comes to an end, so it’s important to review any existing deals regularly. 

Resources

Bank of England – Interest rates and Bank rate 

Bank of England – Official Bank Rate History

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