MPO Interest Rate Update May 2023
Concerns of high inflation continue to grow among mortgage borrowers in the UK. In today’s review, the Bank of England has voted for a further interest rate rise of 0.25%. This is unsurprising as many have predicted this would be the case. This is the 12th consecutive rate rise, taking the Bank of England base rate to 4.5%.
Prices of essential goods and services continue to increase. This combined with the latest hike in interest rates is likely to hit hard for many UK families. Mortgage repayments are going to climb for anyone on a tracker or other variable rate. It’s important to understand what options you have to manage your outgoings.
Monetary Policy Committee meeting May 2023
The Monetary Policy Committee (MPC) meets roughly every 6 weeks to assess whether to change the Bank of England base rate.
As inflation hasn’t dropped as expected, this has led to voting for a 12th consecutive interest rate rise. Inflation and interest rates are tightly linked, with one having a direct effect on the other. The Bank of England uses raised interest rates to try and drive inflation down. Currently, inflation sits at just over 10% (10.1%), which is far higher than the target figure of 2%.
Rising interest rates are intended to decrease demands for products and services. This should then help to lower inflation and stabilise the economy. This latest rise to 4.5% puts UK interest at a rate not seen since the global financial crash of 2008.
This is also the highest interest rate in the G7, with the UK having the lowest economic growth. The UK has not been able to bounce back quickly from the impact of the Covid-19 pandemic. Countries like France have recoved more quickly, experiencing economic growth of more than 1.3%.
The UK’s latest announcement follows on from the US Federal Reserve also voting to increase their base interest rate last week. Both the US and the UK have been struggling with financial difficulties in the last few months. The US central bank has now decided to raise their rates to 5.25%. This is the highest US interest in 16 years.
How will my mortgage be affected?
You will pay mortgage interest no matter what type of mortgage you have. However, how much you will be impacted by the Bank of England rate will vary. This is the same for both interest only and repayment mortgages.
The interest on tracker mortgages is directly tied to the Bank of England rate. If you have a tracker mortgage, you are going to see a rise in cost for your monthly repayments. It would be wise to budget more for this if possible, or consider an alternative e.g. remortgaging to a fixed rate.
Other variable rate mortgages could be set to increase too. No doubt many mortgage lenders will choose to increase their base mortgage rates based on changes to the BoE rate. This would then lead to higher interest for any mortgage holder not tied into a fixed rate with this lender.
Note: Anyone on a fixed rate mortgage deal, doesn’t need to worry for the time being. Your interest rates are set for several years. If you’re not nearing the end of your deal your payments should be unaffected.
More about interest rates and mortgages
Here, we have all our latest interest rate news and predictions that could affect your mortgages and finances in 2023:
- IMF predict a return for low UK interest rates
- Monthly mortgage repayments up by nearly 60% in the UK
- House prices to fall 10% and base rate will rise
- MPO Interest Rate Forecast