Will Interest Rates Rise in 2023?

The Bank of England raised interest rates for the ninth consecutive time on 15 December, taking the base rate to 3.5%. 

The 0.5% increase followed a 0.75% hike on 3 November. Following these two hikes, bank rate is now at its highest level since October 2008.

While the BoE’s latest rate rise was smaller than the previous 0.75% jump, it was still inline with market expectations following data from the Office for National Statistics (ONS), which showed inflation ticked lower in November to 10.7% from October's rate of 11.1%.

While inflation has started to fall slightly - CPI is currently running at 10.7%, down from the 41-year-high of 11.1% seen in October - it is still miles above the BoE’s 2% target. That suggests there could be further rate hikes in the pipeline as the central bank tries to control inflation. Wages have also grown at their fastest rate in more than 20 years, witth average pay rising to 6.4% between September and November compared with the same period in 2021, according to recent figures from the Office for National Statistics.

The MPC last met on Thursday 15 December 2022, and will meet again on Thursday 2 February 2023. After that, its next meeting is on 23 March. If the Bank decides to raise rates on 2 February, it will mark its 10th consecutive interest rate increase.

Will interest rates rise?

The latest inflation figures appear to show that inflation has peaked, which could influence the BoE’s thinking. The government has also said it is committed to halving inflation in 2023 - good luck with that one.

New data out this month will raise the odds of an interest rate rise in February. Wage growth is running at its highest level since records began, which will raise fears that inflation, though falling, is still persistent. Meanwhile, the consultancy Capital Economics believes the Bank could push rates from their current level of 3.5% up to 4.5% in the coming months.

The last interest rate rise in Dec 22, marks an entire year of interest rate increases, to the dismay of those with mortgages, credit cards and personal loans – these groups should prepare for higher payments. Those thinking of purchasing a home might also start to wonder whether now is the best time to buy a house. However, savers will have something to look forward to as banks and building societies increase the returns on savings accounts and cash ISA's, though interest rates still remain significantly lower than the rate of inflation.

What will happen to interest rates in 2023?

At the end of last year, the markets were pricing in interest rates rising as high as 5.7% by the spring, while some experts believed rates would reach 6% in the summer.

But “the predicted peak in UK interest rates has fallen back now, with rates forecast to rise to 4.5% by the middle of the year and set to stay elevated throughout 2023.

The consensus is that Inflation is past the peak, but it won’t move enormously far, and we won’t get much change before the energy price rises. As well as inflation, the MPC looks at what’s happening in the wider economy, such as wage growth and unemployment figures, when deciding whether to change interest rates and by how much.

What will an interest rate rise mean for my mortgage?

While rising interest rates usually spell bad news for mortgages, fixed rates have actually started to fall in recent months. The average two- and five-year fixed rates have fallen for the second month running, down to 5.79% and 5.63% respectively, following 13 consecutive months of rises recorded up to November 2022. 

However, anyone coming to the end of a fixed deal who needs to re-mortgage will still be in for a shock. If you are coming to the end of your mortgage fixed rate period - do get in touch and we would be happy to put you in touch with our independent mortgage broker.

UK Finance estimates around 1.8 million fixed-rate mortgage deals are scheduled to end in 2023. Those customers will have taken out their mortgage several years ago, when rates were a lot cheaper. Earlier this month, the Office for National Statistics warned that around 1.4 million households face a significant rise in their mortgage as fixed-rate deals start to come to an end. 

The average standard variable rate (SVR) continues to climb. At 6.64%, this rate is now the highest since November 2008, according to Moneyfacts. Anyone on an SVR is advised to see if they can switch onto a variable or fixed-rate deal, which could be considerably cheaper.

What will it mean for my savings?

Savings rates should go up as interest rates rise, which is good news for savers, but this is not guaranteed as providers do not always pass on a rate rise to savers at the same speed they do to borrowers.

Banks and building societies are under no obligation to raise savings rates; they may not do so for weeks, or even months, after a BoE announcement. They also don’t need to pass on the full rate rise – it’s quite common for a lender to pass the full rate rise onto mortgage customers, but only a fraction of it onto savers. There are some good rates out there, but due to the current market mayhem, savings rates are changing quickly, with some deals pulled in a matter of hours. So you need to be quick if you spot a decent rate.

What will this mean to the Housing Market?

Undoubtedly the housing market will slow down this year, but I'm not expecting a house crash like we experienced back in 2008. Back then house prices fell up to 15.9% figure taken from Nationwide Building Society. The most notable players in the housing market have predicted house price falls in 20023 from anywhere between 2% to 10%.

They are as follows:  
Savills:10% Halifax: 8% JLL 6% Nationwide: 5% Knight Frank: 5% Zoopla: 5% Rightmove: 2%

Like Rightmove we are more 2% there are many variations in the market depending on the location. Wandsworth & SW London region is stronger than most regions to sustain itself from price falls. Wandsworth has an average annual income of £94,000. 24% of households have a mortgage whilst 54% own their own property outright with no mortgage and the most common age group of locals in the area is between 26 to 35 years.

If you or anyone you know within the Wandsworth Borough have any property needs or require any further assistance, please do not hesitate to get in touch.