Interest rates rise: All you need to know about changes to mortgage and house prices

Interest rates 'not getting fed through' to savings says expert

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This means the base rate is now back to its pre-pandemic level. Almost two years to the day the rate was slashed in preparation for the crisis. The central bank has incrementally raised the base rate at every meeting in the last six months, which in late 2021 stood at 0.1 percent due to the coronavirus pandemic. The bank has warned that inflation could reach double figures in the coming months, with the bank confirming it has now climbed to eight percent. Unfortunately, twinned with the cost of living crisis gripping the nation, the news isn’t positive for those looking to buy or those on certain types of mortgages. So, what does the latest rise mean for your mortgage and for house prices in 2022?

How much will this add to your mortgage?

Research by online mortgage broker Trussle has found the latest 0.25 percent rise could add a further £316.56 to the average UK mortgage.

This will mean that mortgages have increased by £972.60 since December 2021.

Amanda Aumonier, Head of Mortgage Operations at online mortgage broker Trussle, told Express.co.uk: “The economic climate is extremely uncertain, and this move will place homeowners under further strain.

READ MORE: Recession warning over Bank of England rate hike

“However, in the face of spiralling inflation, the Bank of England has few other options to try and tackle the wider cost of living crisis.”

“It’s important that homeowners, who are feeling anxious about their finances, look at their options.

“Moving away from expensive Standard Variable Rates, or even just locking in your mortgage payments for a longer-term can give you some certainty and peace of mind.”

Will this increase house prices?

Unfortunately, house prices are unlikely to drop anytime soon, with preexisting issues still driving the market instead of interest rates and inflation.

Lucian Cook, head of residential research at Savills, said: “In the short term, we expect the imbalance between fairly resilient levels of demand and the shortage of available stock on the market to continue to be the overriding driver of house prices.

“At a headline level, we can see that the market is continuing in the same vein as the second half of last year; with agreed sales running at around 20 percent above normal pre-pandemic levels and the levels of new instructions at eight percent below that benchmark.

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“Relatively strong wage growth, together with high levels of fixed-rate borrowing and affordability stress testing at the point homeowners took on their mortgages, suggest projected interest rate rises won’t put existing borrowers under undue financial stress.”

However, Savills did outline prices aren’t predicted to climb overwhelming either – a break from the record market growth seen over the past two years.

They continued: “The fact that expectations of interest rate rises have been brought forward is likely to act as a drag on the size of the mortgage they are comfortable with or can secure from their lender. And we would expect that to contribute to a slowing of price growth over the course of the year.

“But for the moment, the imbalance between resilient demand and very low levels of stock available will cushion any impact.

“The Bank of England has also launched its consultation on the relaxation of mortgage regulation, which could further mitigate the impact of further interest rate rises in the future.

“The prospect of further rate rises over the course of the year also points to a continued stratification of the market, with activity levels remaining more robust in higher price bands where more affluent buyers have more housing equity to fall back on.”

What should I do to avoid paying more?

Not everyone will be paying more on their mortgage – at least not immediately.

David Beard, CEO of financial comparison site, Lendingexpert.co.uk, told Express.co.uk: “This interest rate rise should serve as a warning to millions of mortgage holders to get their finances in order.

“Depending on the type of mortgage you have, the increase in today’s Bank of England’s base rate could affect your mortgage repayments.

“There’s likely to be an immediate impact for customers on a tracker rate mortgage or a standard variable rate.

“For the millions of people who are coming to the end of their fixed-rate deal in the next 12 months, this rate rise could have implications as lenders remove their lowest fixed rate deals.”

Michael Foote, Editor-in-Chief of mortgage comparison site, Quotegoat.com, said even though higher interests rates fall in favour of savers, they shouldn’t be too quick to celebrate.

He told Express.co.uk: “This interest rate rise doesn’t come as a great surprise, but it should be a wake-up call for borrowers and savers alike.
“Sadly, savers shouldn’t start rejoicing – even if the banks pass on this increase, average savings rates will still fall far short of inflation.

“If you have savings, it’s worth checking if you can make your money work harder for you whilst it’s in the bank – and if you have debts, it might mean you’re better off paying down those first instead”.

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