Is this the last interest rate rise for now?

The UK’s base rate of interest currently sits at 4.25%, which is the highest it has been for some time. This is understandable considering the rate of inflation is x5 more than the Bank of England’s usual target of 2%.

The idea is that the bank increases interest to encourage people to spend less and save more. When people are less willing to spend, businesses need to be more competitive to win sales and clients, and thus, they cannot keep putting prices up. So, the cost of living should then come down.

Of course, things are a lot more complex than this, but it gives you a fundamental understanding of the situation that’s unfolding. But are things about to change?

How many more interest rate rises will there be?

"We were really a bit on a knife edge as to whether there would be a recession... but I'm a bit more optimistic now"

These were the words of the Governor of the Bank of England, Andrew Bailey, last month. The sounds coming out of the Bank of England suggest we may now be at the peak of the interest rate rises for now. The next committee meeting may decide to take a break from interest rate increases. Some are even crossing their fingers for an interest rate decrease by the end of the year.

This will be music to the ears of homeowners paying off a tracker or variable rate mortgage. But we must remain cautious as there were also sounds that the last interest rate hike wasn’t on the cards. Although, this increase was a response to an unexpected increase in the inflation rate.

When will interest rates start to decrease?

When it comes to interest rate changes, they’re often said to increase like a rocket and fall like a feather. This is what’s forecasted to play out regarding the current situation.

The current rates have risen exponentially with multiple successive increases. Experts are predicting that the rates may start to come down by the end of the year, possibly to between 3% and 4%. But it won’t be until the end of 2025 until we might see rates back to 2% to 2.5%, which would then indicate that the rate of inflation is back under control.

So, should I stick with a variable mortgage deal?

Fixed-rate mortgage deals usually have a higher rate of interest than variable deals but they shelter homeowners from rate increases. If the interest rate is about to drop, it may be better to switch to a variable deal if possible.

However, everybody’s situation isn’t the same and changes to the base rate are never guaranteed. It’s best to speak with one of our mortgage advisers for accredited and tailored advice.

April 2023