An increase in base rate from 0.1% to 0.25% by BoE seems like a small increase but it is set to be followed by a series of further hikes over the next couple of years.
On 16th December 2021, The Bank of England (BoE) raised its base rate from 0.1% to 0.25%. This will surely go to affect the interest rates on your mortgages and savings, as well as your living cost. This blog is going to discuss how this base rate increment will impact your household budgets and how it will affect your mortgage payments.
Budgets will be squeezed without doubt, and the price of new and non-fixed rate mortgages will rise after the Bank of England has made a surprise decision to increase the base rate to 0.25 per cent. In fact, it is not that surprising because we have been discussing the possibility of this decision coming in our earlier blogs.
With the cost of living already on the rise, this decision is going to hit people, especially the middle and low-income class in the pocket. But in the broader perspective, BoE has made this move in an attempt to stall inflation spiralling further. Apparently, the base rate has risen by only 0.15 per cent, but it comes on top of sharp increases in the fuel prices, cost of energy bills, and property rates in recent months.
This is going to translate into a full rate rise to borrowers on its standard variable mortgage rate. It will cause it to rise 0.15 per cent to 4.49 per cent. And all this was declared within an hour of the rate rise being announced. While this decision will add some extra monthly burden on individuals who have signed up for variable-rate mortgages, those with fixed-rate deals will be safe for now as their monthly payments will remain unchanged, but the cost of obtaining new fixes will rise for homeowners.
The real reason behind this decision is the increase in Consumer Price Index rise was prompted by news yesterday that the Consumer Price Index. CPI is the measure of inflation that has risen to 5.1 per cent against the expectation of the Bank of England. The bank initially foresaw that it would not hit this high level until spring 2022. It is important to note that while the UK economy is trying to recover from the pandemic while battling rising inflation, it’s not going to be the only increment in the base rate. It will be followed by several base rate rises in the coming months. The Bank’s Monetary Policy Committee intends to reduce inflation to 2 per cent which requires modest tightening of monetary policy.
All these statements indicate that by spring 2022, the base rate will rise to 0.5 per cent, and it might hit 1 per cent by the end of next year. The Office for Budget Responsibility anticipates the base rate could increase to 3.5 per cent by 2023.
The base rate has increased for the first time in three years, and only the fourth hike since 2007. In a bid to prevent economic shocks at the beginning of the pandemic, the base rate was chopped from 0.75 per cent to a notable low of 0.1 per cent.
It’s simple mathematics that if inflation is on the rise, your daily spending is going to increase and your savings are at the risk of depleting. The rise in fuel prices, energy bills and mortgage payments is further going to squeeze the monthly household budgets. If you are planning to buy your first home in 2022 and saving for a downpayment but finding it hard, Prysm Property’s Tenant Buyer Scheme is here to help you. We have designed this scheme to help people get on the property ladder with ease even amidst the financial crisis and inflation. To learn more about Tenant Buyer Scheme, read our blog What Is A Tenant – Buyer Scheme And How Does It Work?
