Taking an interest

With the Bank of England base rate having risen to 1.75% at the time of writing, and predicted to head higher over the coming months, we take a look at how its set and how the increases will affect property owners.

HOW ARE INTEREST RATES SET?

The interest rate you hear on the headlines is that set by the Monetary Policy Committee (MPC) of the Bank of England. They consider the data collected on the economy each month and decide whether to increase, decrease or maintain the current base rate. The base rate is the interest rate at which banks borrow from the Bank of England.

WHO IS ON THE MONETARY POLICY COMMITTEE?

The MPC is made up of nine members: the governor of the Bank of England, Andrew Bailey; the three deputy governors for monetary policy, financial stability and markets and banking; the Bank of England’s chief economist; and four external members appointed directly by the Chancellor of the Exchequer.

WHY IS THE MPC PUTTING INTEREST RATES UP?

Interest rates are put up in an attempt to keep inflation down by reducing spending within the economy, as it costs more to borrow, and encouraging saving, as the returns are better. The Bank of England is tasked with maintaining UK inflation at a stable level of 2% per year. It’s currently far above this target at 10.1% and predicted to head higher still over the coming months.

HOW DOES IT AFFECT YOUR MORTGAGE?

When, and if, your mortgage repayments are affected by an interest rate change will depend on the type of mortgage you have, and when your current deal ends.

If you have a variable rate tracker mortgage, linked to the base rate, you are likely to see an immediate impact on your mortgage repayments if there is an interest rate rise.

Those on a standard variable rate mortgage will probably see an increase in their rate in line with any interest rate rise; however, how much is decided by the lender.

People with fixed rate mortgages are likely to be affected once they reach the end of their current deal, and interest rate rises could make remortgaging more expensive.

HOW HIGH WILL INTEREST RATES GO?

With so many factors affecting the global economy at the moment, it’s impossible to predict how much interest rates will increase by. What’s certain is that they will, and many property owners used to the very low rates we’ve seen in recent years may get a nasty shock as their mortgage payments rise.

WHAT ARE THE HISTORIC HIGHS AND LOWS?

From 1971 through to 2022, the UK interest rate averaged 7.15%. The alltime high was set in November 1979 when it reached 17%, while the Covid pandemic saw the Bank of England reduce it to a historic low of 0.1% in March 2020. So, while the current rate hikes may seem steep to some, historically we’re still facing very low rates.

Fixed Rate Mortgages, by

Have peace of mind knowing exactly what your monthly repayments are with our 10-Year, 5-Year or 2-Year Fixed Rate mortgages. Our friendly on-island team understand the local market and can respond to your mortgage application within a few days.

Let’s have a conversation about how Butterfield can help.

E-mail CIMortgages@Butterfieldgroup.com or call us on 751 900.

butterfieldgroup.com

Your property may be repossessed if you do not keep up with repayments on your mortgage. To apply, you must be 18+ and resident in Guernsey. All mortgages are subject to status and valuation. The maximum amount you can borrow will depend on your individual financial situation, your other circumstances, the property you wish to buy and the type of mortgage you choose.