The Bank of England raised its key interest rate to 0.75 percent this week. This will cause central London home prices to rise at the fastest rate in seven years. The interest rates will rise by GBP70 for borrowers with larger mortgages, which can go up to GBP2,636 to GBP2,706. They were as low as 0.8 percent last Autumn. This could lead to them dropping their guidance that a slight tightening in policy is possible in the coming months. While we still believe there will be a rate increase in May that would bring rates to one percent, the Ukraine crisis could mean that this may be delayed. The increase in interest rates today will immediately impact the budgets of approximately 200,000 London home owners who have tracker or variable rate loans. This will further squeeze living standards. This will get worse next month as the average energy bill cap rises by 54% to GBP1,971. Dominik Lipnicki director at broker Your Mortgage Decisions stated: “There are specific causes for the current inflation we’re experiencing and raising the Bank of England base rates does very little to solve the problem. We’ve all witnessed huge increases in energy prices, and there are more to come. This, combined with the upcoming National Insurance increase, means that many people will be in financial trouble and many will have to choose between heating or eating. This financial strain will only get worse if people increase their mortgage payments. We are headed for a very difficult year ahead and raising rates is not the solution.
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