The Bank of England recently announced a rate increase, bringing their base rate to 4.5%. This news has created a ripple effect throughout the UK mortgage market, with property investors particularly impacted by the change. As the landscape of Mortage Rates UK continues to evolve, it is important to stay informed about the latest developments and how they may affect your investment. In this blog post, we'll explore the impact of the recent Bank of England Rate increase on Mortage Rates UK, as well as the potential implications for home buyers and investors.

Overview of Current Mortgage Rates in the UK

Here’s a quick overview of the current mortgage rates in the UK based on the information we have found online:

The Bank of England base rate is 4.5% as of June 2023, after ten increases since December 2021.

The average standard variable rate (SVR) is 6.78%, while the average fixed-rate mortgage rate ranges from 5.2% to 5.48% for two-year and five-year terms, respectively.

The average two-year fixed-rate buy-to-let mortgage rate in the UK is 5.94%, based on 75% Loan To Value (LTV), the average five-year fixed-rate mortgage rate is 5.59% (based on 75% LTV), and the average two-year variable-rate mortgage rate is 5.15% (based on 75% LTV).

The rates may vary depending on the type and duration of the mortgage, the lender, and the loan-to-value ratio (LTV). They may also change regularly due to market fluctuations and inflation.

The potential impacts on the property market on increases in the Bank Of England's interest rate, specifically if the rate reaches 6%.

The Bank of England's interest rate is the rate at which the central bank lends money to commercial banks, and it has a strong influence on the expense of borrowing and saving for consumers and businesses. A higher interest rate leads to higher mortgage rates for homeowners and buyers, and reduced yields for savers.

A higher mortgage rate could decrease the demand for property, since it becomes more costly to take out a loan to purchase a home. This can result in lower house prices, as vendors might need to reduce their asking prices to attract buyers. It could also affect the affordability of current mortgages, as some borrowers might find it difficult to keep up with their repayments or face negative equity (when the value of their property is less than their remaining mortgage balance).

A reduced house price can have both beneficial and detrimental impacts on the property market. On one hand, it can make property more accessible for first-time buyers or those with smaller deposits, as they might have to borrow less money. On the other hand, it can diminish the equity and wealth of current homeowners, and dishearten them from relocating or investing in property. It may also influence the supply of property, as some sellers might delay listing their houses until prices rise.

The outcome of the interest rate increase on the property market could also be affected by other factors, such as inflation, income growth, consumer trust, housing supply and demand, and regional disparities. For example, higher inflation can diminish the real value of debt and make property more attractive as a protection against rising prices. Higher income growth can counterbalance some of the impacts of higher mortgage rates and sustain the demand for property. Higher consumer trust can inspire people to spend more and invest in property. Higher housing supply can enhance the selection and competition for buyers and decrease prices. Higher housing demand can indicate population growth, immigration, household formation, and lifestyle choices.

The prospects for the property market are uncertain, as it relies on how these factors work together and change over time. Some specialists suggest that house prices will drop for the first time this year, initiated by the interest rate increases. Others suggest that house prices will remain sturdy, as demand still exceeds supply and low unemployment bolsters income growth. Some analysts anticipate that interest rates will remain high for the foreseeable future, as the Bank of England strives to control inflation.

Whether this is an ideal time to buy property for the long term or invest in property is contingent on your individual conditions, goals, and risk tolerance. You may wish to take into consideration elements such as your income security, deposit size, borrowing capacity, repayment affordability, anticipated return, tax implications, maintenance costs, and alternative investment options. You may also wish to get expert advice from a financial planner or a mortgage broker before making any decisions.

Keeping money in the bank might not be wise if inflation is higher than the interest rate you acquire on your savings account. This implies that your money is gradually losing its purchasing power over time. Property investment might balance out this concern if property prices increase quicker than inflation over the long term and generate positive returns. Nonetheless, property investment also carries risks and costs that you need to be aware of.

How to balance your investment against inflation?

According to the Office for National Statistics (ONS), tenant rental costs have risen significantly in the UK, by 2.0% in January 2022 and a further 8% spike in the first half of 2023. Unfortunately, seven out of the twelve UK regions are currently experiencing the worst rental affordability in a decade. Nonetheless, investing in a property that produces significant rental yields is a viable way to compensate for the rising inflation rate.