How the Cost of Living will Affect Mortgage Rates in 2023| MENAFN.COM

Thursday, 23 March 2023 03:31 GMT

How the Cost of Living will Affect Mortgage Rates in 2023

(MENAFN- 2T Digital Limited)

People all across the country are struggling right now. From everyday household bills to growing food prices, prices in the UK have risen by over 11% in the last year according to Mena FN - the highest inflation has ever been in the UK in 40 years.

To simplify things, take this scenario, for example - this time last year, a loaf of bread may have cost £1. However, as of now, that loaf of bread will have probably risen to £1.09. The rapid rise in inflation is being driven by not only rising fuel costs but also by the growing cost of food. Over the winter, inflation is set to peak even further - currently at a record high of 11.6%. However, the Bank of England has predicted that this will fall during the middle of 2023.

Is now the right time to buy in the UK?

In the meantime, where does this leave mortgage rates and those looking to get onto the property ladder? Last Thursday, the Bank of England announced another staggering 0.75% increase to its base rate, which will only add mounting pressures to families currently feeling the effects.

Steve Barras, Development Officer at Just Credit Union, said: “As a rule of thumb, for each one percentage point the mortgage rate increases, repayments increase by roughly £50 for every £100,000 borrowed.”

The base rate increased from 0.1% in November 2021 and currently stands at around 3%. The average mortgage is around £150,000 in the UK, meaning the average household may have seen their monthly repayments increase by an additional £200. Additionally, if you haven't seen an increase now, you will likely see this in the future. Even those with fixed rates are set to be affected once that fixed period comes to an end.

“The market is predicting that the Bank of England base rate will rise above four percent by the end of 2022 and as high as 5.5 percent by July 2023”, said Steve Barras.

“People with fixed-rate mortgages are protected for the period of their fix. However, once they reach the end of their current deal, they are likely to see a large increase in the cost of mortgages available.”

So what does this mean for people wondering whether now is the right time to buy? Whilst house prices are falling, and interest rates are climbing, many are stuck in what appears to be a Catch-22.

Nationwide’s latest house price index shows house price growth slowed to 7.2% in October compared to 9.5% in September. The index also revealed the first downturn in house prices, which fell 0.9% month-on-month, the first fall since July 2021 and the largest since June 2020.  The drop means the average house price is now £262,282 – down from £272,259 in September.

The UK's biggest mortgage lender, Lloyds Banking Group, has predicted an 8% decrease in house prices in 2023. Whilst real estate company, Zoopla, has also approximated a similar decline of 5%.


However, whilst many mortgage lenders offer interest-rate deals, house prices continue to become less affordable. Unaffordability means that first-time buyers have fewer options as years of low-interest rates once supported property prices. However, growing interest rates are weighing heavily on first-time buyers in accumulation with the cost of living crisis and high energy prices. Although stamp duty cuts will certainly incentivise buying a property, there are many factors to consider, with rising energy bills being one of them.


Suppose you want to buy a house and you can afford it. In that case, it might be better to invest now as property prices are forecasted to fall, and it could be over a year before this happens. Likewise, if now isn't the right time for you financially, there is no harm in waiting. It's best to weigh up the pros and cons of buying before locking into any agreements.


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