Borrowing is now more expensive. The standard base interest rate set by the Bank of England’s Monetary Policy Committee (MPC) was doubled from 0.25% to 0.5% during the most recent meeting on 3 February. The move to hike the rate was expected due to the fast growing inflation rate. However, expected or not, it will prove to be a wakeup call to those that could be put into financial hardship as interest rates move away from the historic lows experienced due to the pandemic.

As expected, the housing market experienced a boom in January. The expectation for home buyers to flood into the market was based on buyers seeking to avoid having to choose a mortgage with a higher interest rate. The Bank of England’s Monetary Policy Committee (MPC) increased the historically low standard base interest rate in December from 0.1% to 0.25%. The next meeting set for the MPC would be February. This would leave a tight window of opportunity for homebuyers to purchase and still have access to cheap borrowing.

The UK is getting used to record breaking in the housing market and also in the lending market. As of late, the housing market has reached new highs again and again as house prices rose due to strong demand brought about by the pandemic. Also, last year, until December, borrowers had access to extremely low interest rates. The Bank of England’s Monetary Policy Committee (MPC) in response to the global pandemic lowered the standard base interest rate to the lowest level ever in over 300 years. 

In December, the Bank of England’s Monetary Policy Committee (MPC) surprisingly raised the standard base interest rate from the hundreds of years low level of 0.1% to 0.25%. While still low, the interest rate more than doubled. Lenders quickly followed with changes in their offerings in lending. Homeowners that had been waiting to take action, and home buyers forced by high demand to wait out their choices in the housing market missed out on the best offerings in remortgages and mortgages. There had been an expectation of the first rate hike to come in the start of the new year, and while December was a surprise, the warnings are clear that another hike is likely in February.

Homeowners have been encouraged to shop for a remortgage sooner rather than later or face higher costs with rising interest rates. In December, the Bank of England’s Monetary Policy Committee (MPC) voted by majority to increase the standard base rate. Now, there could be yet another rate increase during the next MPC meeting on 3 February. According to a recent report focused on the possibility of a rate hike, it is expected the current 0.25% rate could be doubled to 0.5%.

When it comes to borrowing, it is all about the interest rate. Though there are other costs that could be involved in borrowing, especially with property in which there can be valuation and legal costs, the interest rate takes full center spot in shopping for the best loan. The interest rate determines the cost of borrowing. The lower the rate the cheaper the cost, and the higher the rate the more the borrower will pay.