Back on 23rd March, The Bank of England increased interest rates one more notch from 4% to 4.25%. Some had hoped that inflation would fall at a faster rate, paving the way for additional monetary tightening to dampen demand and slow price increases.
It is unclear whether a further increase in UK interest rates will significantly raise mortgage rates. There is a sense that base rate increases are coming to an end in the UK as well.
Over the past three months, average fixed-rate mortgages have dropped back from the highs seen at the end of 2022. According to data from the Bank of England, the average 5-year fixed rate mortgage with a 75% loan to value (LTV) has decreased from a peak of 5.6% in October to 4.38%.
Fixed rate mortgages rates are expected to sit between 4% and 4.75% for most of 2023. This is low by historical standards, but it means that the average buyer will have to pay £200 to £500 more in mortgage payments each month than they did at the beginning of 2022, when mortgage rates were much lower.
The increase in the base rate is not expected to make much difference to the outlook for the housing market. Although there is less demand for homes than there was last year, sales are still being agreed upon, albeit at a slower rate (20% lower).