Prospect Tree Mortgages Ltd

Will UK interest rates continue to go up in 2022?

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Updated 9th May 2022

Estimated reading time: 6 minutes

Bank of England increases Base Rate to 1%

Should I remortgage before my fixed rate ends?

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Since the end of 2021 the UK has seen four increases to the Bank of England’s Base Rate. Firstly in December when the rate was changed from 0.15% to 0.25%. Again in February 2022 when it was increased to 0.5% and again in March when it was increased to 0.75%.

Each time the rate has been increased the Bank has cited soaring inflation as the key reason for these shifts.

The most recent increase to 1% on 5th May now puts the base rate at it’s highest level in 13 years and has caused much debate over whether it was the right move to make.

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So less than a quarter of the way through 2022 and we have yet another worldwide crisis on our hands. Vladimir Putin has decided to wage war on European soil, mobilising Russian forces and commanding a full-scale invasion of their neighbouring nation Ukraine.

We are shocked and deeply saddened by the events which are unfolding. For this reason we were not sure whether we wanted to publish this article.

However, we are finance professionals and see it as our duty to shed light on the impacts which this could have on our customers and their finances.

In this article, we are looking only at the potential impact that this could have on mortgage repayments in the UK. As we discuss, prices are likely to increase across the board and we would like to help you make savings where possible.

So, what are the costs of war?

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In lots of circumstances, war can lead to inflation. In 1991, the Gulf war caused oil prices to increase from $21 a barrel to a post-invasion peak of $46.

Russia is a major supplier of oil and gas and following economic sanctions we will see a reduction to the global supply which will put upwards pressure on the prices. It is inevitable then that this recent invasion will continue to drive the price of fossil fuels higher.

Unfortunately, an increase to the price of fossil fuel doesn’t happen in isolation and is frequently the first of many dominos to fall.

Increased fuel prices make it more expensive for companies to manufacture and deliver their products which will see a widespread increase to prices, not just at the petrol pump.

For a more in depth look at the ‘costs of war’ we recommend you read this article from economicshelp.org

War increases national debt

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In both WWI & WWII the UK saw a sharp rise to national debt. Wars see governments far more willing to borrow money than they usually are to fund the war effort. This could prove particularly problematic as we have already seen a spike in national debt due to the recent pandemic as shown below.

Over time, national debt will mean that people will have to pay more for goods and services. In turn, this will drive up inflation.

The Bank of England aims to keep inflation at 2% and if they miss this target by more than 1 percentage point, they must tell the government why.

Included in the report will be a plan for how the Bank aims to get the rate of inflation back within 1 percentage point of its 2 % target. All of these letters are published on the bank’s website.

Will the increasing bank rate affect my mortgage repayments?

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The bank was already on record saying that interest rates may need to rise again back in February and since then have made a further two increases totalling to an additional 0.5%.

Lenders have been reacting by increasing their interest rates, with TSB being the first high-street lender to say that the full increase to their costs will be passed onto customers.

What can I do?

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As the landscape is changing day-to-day, it is more important than ever to have an awareness of your current liabilities. Many of us fall into the trap of ‘ignorance is bliss’ and just continue to pay our repayments each month without much of a though about what happens next. In times like these this is a dangerous stance to take.

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If you wait for your lenders letter explaining your fixed rate is ending, you may be in for a nasty surprise and left scrambling for a better deal in a market which presents less opportunity than you may have hoped for.

Whist remortgaging early could mean you are left with penalties to pay, sometimes this can be a financially beneficial move. We discuss this more in our article here

If you are concerned about rising interest rates, and the affect that they could have on your mortgage, contact one of our mortgage experts today and see what options are available to you.

Is there still an opportunity to save?

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This will totally depend on your personal circumstances. Those who maximised their mortgage when they took it out may find that they have less options than those who took a more cautious approach.

However, as house prices continue to rise for the moment, many homeowners will now be enjoying more equity in their property and could find that they now have a lower LTV (Loan to Value) than they did when they initially took out their mortgage.

Having a lower LTV generally gives you access better products from lenders, so there could still be an opportunity to save, at least for now.

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