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New interest rate predictions for UK in 2023

Here, we have our most up to date MPO mortgage interest rate predictions for the rest of 2023

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 25 April 2023

4 min read

New interest rate predictions for the UK in 2023

We work hard to keep you informed about the latest UK mortgage and financial news. Here, we have our most up to date MPO mortgage interest rate predictions for the rest of 2023.  

We consistently review the market and recent financial news for anything that could affect mortgage holders in the UK this year. Though the current rates are higher than what many people will be used to from the mortgage market, rates have previously been as high as 17% back in the 1980s.  

There has still understandably been concern about how many UK homeowners will afford repayments if UK interest rates (currently 4.25%) continue to rise.  

SUMMARY: We are going to explain all the recent announcements and events that could impact mortgage rates in the UK moving forwards.  

Current Base Rate = 4.25% (increased from 4% in March)  

More about interest rates:  

The Monetary Policy Committee has voted for 11 consecutive interest rate rises, as a way of combatting rapidly rising inflation in this country. Inflation (Consumer Price Index) was expected to fall but is still solidly remaining above 10% (10.1% as of April 2023).

2% inflation is what the Bank of England aims for as a good indicator of economic growth. With current levels more than 8% higher than this, further interest rate rises will more than likely occur this year.

Interest rate predictions: It is a popular opinion among economists that the Bank of England interest rates will increase to around 5% by August 2023.

What are the Bank of England interest rate predictions?

The Bank of England raises or drops the UK base interest rate based on various economic factors. This includes the major financial crash of 2008, the Covid-19 pandemic and more.

Other factors that can cause the Bank of England to adjust interest rates include:

  • High Consumer Price Index (Inflation levels)
  • A rise in unemployment or average wages can cause rates to rise
  • The threat of a potential recession (the economy shrinking for two or more quarters in a row)

Inflation is the main issue driving the rise in interest rates over the past year. As the cost of living in the UK rises, inflation has been steadily climbing. The main way the BoE works to reduce is increasing interest. The idea of this is that higher interest rates should decrease demand for products and services, helping to bring the economy back to stability.

Though it is believed now that the BoE will rise to 5% this year (we previously predicted a high of 4.7%), nothing is set in stone. It’s not only mortgages that will be impacted by interest rate changes. Credit cards, finance agreements and more could increase too. It is best to keep yourself well informed to avoid being surprised by extra costs you have not budgeted for.

What are the new mortgage interest rate predictions?

You will pay interest on any mortgage, so changes to UK interest rates could mean a significant increase for your monthly repayments.

The main thing to remember with mortgages is that how much you will be affected (or if you will) depends on your lender and the type of mortgage.

  • Fixed rate mortgages – you are unlikely to be impacted by interest rate rises (or falls) any time soon, unless your special rate ends this year
  • Tracker rate mortgages – your rate is directly tied to the Bank of England base rate so you’ll see a change in your payments fairly quickly if any change occurs
  • Standard variable rate mortgages (SVR) – if you are on your lender’s standard variable rate, the lender may or may not change their rate if the BoE changes theirs.

It is easy to get confused or not be sure what will happen with your mortgage, especially with the market having been so uncertain recently. If you aren’t sure where you stand, you should contact your lender or a qualified mortgage broker for more advice.

More on this:

This comes down to personal choice but could be worth it to avoid rising costs. You should carefully weigh up all your options before coming to any big decisions about your mortgage. Main things to consider:

  • Interest rates look likely to continue rising, so anyone on a variable rate will need to budget for the possibility of higher payments. You could find yourself needing to find hundreds of extra £s each month to cover these new repayments.
  • Switching to a low fixed rate deal if you can find could save you a lot of money, though it is important to note you also wouldn’t benefit from lower payments if interest rates fall.
  • We always recommend reviewing your mortgage every now and then regardless of interest rate changes. This is common practice and allows you to make sure the deal you have in place is still the best available and the one most suitable for you.

Resources

Bank of England – Monetary Policy Committee dates for 2023 and 2024

Bank of England – Interest rates and bank rate

Nationwide – Bank of England base rate changes and your mortgage

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