Interest Rates Rise But Mortgage Rates Could Still Fall

February 17, 2023

Interest rates have risen for the 10th consecutive time in a row, but there is some more optimistic news for mortgage holders and first time buyers. The first good sign is that the predicted recession will be shorter and shallower than first feared, and the second is that borrowing costs are about to peak, and should soon start to fall. 

Interest rates were raised yet again on 2 February by half a percentage point, and they now stand at 4%, the highest rate since the financial crisis of 2008. However, in an interview with Sky News, Andrew Bailey, governor of the Bank of England, said that there were some reasons to be cheerful, albeit with a note of caution. 

He said: “I do see the signs that we’re turning a corner, and that obviously is encouraging but there’s a long way to go. There’s still some very big risks out there. We’re going to take each game as it comes and look at the evidence very closely.” 

Commenting on whether wage rises could hamper the fall of inflation, he added: “What happens going forwards on wage setting will be very important and we’ll be watching it very closely because that will be an important indicator of whether the very sharp downward path of inflation will happen.”

The current forecasts indicate that inflation has peaked, and will start to fall slowly over the next two years. The predictions of a long and severe recession have also been revised down, with a fall of 0.5% in growth now expected, compared to the forecast 1.5% last November. 

On the subject of mortgage rates, Mr Bailey told Sky News that the outlook was generally more positive too: He was “hoping that we’ll see much more stability in the interest rate curve off of which mortgages are priced off. That evidence is helpful, but there are a lot of people who don’t immediately benefit from that.”

A spokesperson for the prime minister commenting on the figures said: “Inflation is the biggest threat to living standards in a generation, we support the bank’s action today. We will continue to take the decisions needed to reduce inflation.”

“This is a difficult time for mortgage holders in the UK. Inflation falling is not a given, it requires government to stick to the difficult decisions it has taken.”

The average mortgage rate now stands at about 4.45%, which is twice as high as one year ago, but well below the September 2022 spike which saw highs of 6.5%. Combined with falling house prices, this paints a more optimistic picture for anyone looking for a good mortgage deal in 2023.

If you are looking for adverse credit mortgage brokers UK, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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