The UK’s interest rate has increased again, marking the twelfth time in the past 19 months. This rise directly impacts the mortgage payments of millions of households in the country and has caused a shock to both the housing market and bank borrowers faced with higher costs. Do you happen to know the current interest rate for UK mortgages? Additionally, this article informs you that the UK government has implemented policies to assist eligible applicants with obtaining mortgages. Regarding the Bank of England’s decision to increase interest rates, several factors may be involved, such as concerns about inflation, economic growth projections, or global financial trends.
An increase in the monthly instalments of British mortgages
The Bank of England’s Monetary Policy Committee raised the interest rate by 0.25% to 4.5%, still the highest rate in a decade. This will add a few hundred pounds to the monthly mortgage payments of millions of Brits suffering from a cost of living crisis.
Rising interest rates in the UK
The Bank of England decreased the base interest rate to 0.1% until the end of 2021 in response to the economic impacts of Covid-19. However, due to the exacerbation of financial difficulties in the UK and the outcomes of the conflict in Ukraine, this rate is expected to rise from 2022 onwards, potentially reaching 5%. Meanwhile, during this period, the inflation index has jumped from 2% to 10%, and the BoE aims to control inflation by increasing borrowing expenses.
The BoE is trying to curb inflation by increasing the cost of borrowing.
However, statistics show that the UK is the only country in Western Europe suffering double-digit inflation. According to the latest Office for National Statistics (ONS) report, the inflation rate in the UK is 10.1%. This index reached 11.1% in October last year following the jump in energy prices, the highest level since 1981. This amount then went on a downward trend, and now, contrary to experts’ predictions, it has not yet dropped below the two-digit mark.
The BoE is forced to increase interest rates.
UK’s Chancellor of the Exchequer, Jeremy Hunt, said last month when presenting the government’s new budget bill to Parliament that the spending watchdog predicted that inflation would drop to 2.9 per cent by the end of 2023. However, due to the difficult economic situation, the Bank of England has no choice but to increase the interest rate to curb inflation, and it is unclear how long this process will continue.
The inability of English households to pay mortgages
The Guardian recently reported that 700,000 British households could not pay their mortgages in the past month alone. This report indicates that more than 2 million Englishmen have not paid their housing rent, bank loan instalment, credit card or bills during the same period. This situation has caused people to inevitably resort to compensatory measures such as reducing food purchases, selling assets, borrowing or, in the best case, using savings.
Declining housing prices in the UK as a result of the economic recession
The UK’s largest mortgage lender has announced that property prices in the country have fallen to their lowest level in 14 years due to the economic downturn and financial problems. Nationwide published a report on Thursday and announced that house prices fell by 3.4 per cent in the year ending in May, which is the highest rate since July 2009. This British credit financial institution also warned that if the central bank’s base interest rate increases further, the housing market will experience more damage.
UK government’s stable interest rate forecast contradicted by rate increase.
The government predicted that with the decrease in inflation, the interest rate would also decrease from the middle of this year. But experts now predict that another 100 basis points will probably be added to this index, and it will exceed the 5% mark. These developments occur while the UK’s inflation rate is decreasing more slowly than expected by experts. According to the latest report of the ONS, the inflation rate increased from 10.1% in March to 8.7% in April, which is 0.5% higher than the BoE’s estimate.
Rishi Sunak’s government’s inability to curb inflation
To secure a Conservative party victory in the 2024 general election, Prime Minister Rishi Sunak aimed to lower the inflation rate and decrease interest rates by the end of this year. At the beginning of the year, he promised to curb inflation and reduce interest rates; however, evidence suggests his calculations were incorrect halfway through the year. Experts believe the Prime Minister’s pledge is misguided, and the government cannot control inflation or lower interest rates.
Criticism of the Labour Party to the economic policies of the Conservatives
Conversely, Keir Starmer, the leader of the Labour Party who is expected to take over the government in next year’s elections, expressed concern about the financial situation. He stated, “Almost nobody feels better off after 13 years under this government. I am particularly worried about the issue of mortgages, as people are struggling to pay their bills, which is placing a significant burden on them.”
Pessimistic forecasts of the shrinking of the UK economy
The UK economy is in the worst state of the last half century due to several successive crises. According to the new evaluation of the International Monetary Fund (IMF), the economy of this country is in the worst condition compared to other economic powers in the world. It will be smaller in the new year. According to the estimate of this international organization, the UK economy will shrink by 0.6% in 2023, contrary to the government’s claim. The IMF has also predicted that the UK will be the only country whose economy will shrink over the next year (2024) compared to all advanced and emerging economies, even Russia, which is under sanctions.
The OECD’s prediction of the future of the UK economy
British officials insist that the IMF’s forecast was not always correct and that the country’s economy will perform better. Still, the Organization for Economic Co-operation and Development (OECD) recently predicted in a similar report that the UK’s GDP will decrease by 0.4% this year and grow by only 0.2% next year (2024). According to this report, the UK economy will experience the worst situation among the G20 countries after Russia and Sweden.
Chronic crisis in the UK economy
According to a report by The Economist, the UK’s economic situation is a chronic crisis worsened by the country’s departure from the EU. The publication notes that the UK is currently facing 15 years of uncertainty. While it aspires to be dynamic and free-market oriented, its economy lags behind many wealthy nations. Acknowledging the severity of these issues, Rishi Sunak has warned that the government cannot solve all problems, and economic challenges will not disappear this year.
The dire situation of the housing market, according to experts’ predictions
According to experts, the housing market is expected to deteriorate in the upcoming months due to a smaller-than-anticipated decline in inflation. This is likely to worsen the situation in the short term. Analysts predict that the interbank interest rate will increase to 5.5%, which could put significant financial pressure on borrowers within the banking system.
