Fixed Versus Variable Mortgage Rates in 2023
As of February 2023, the Bank of England base rate was increased to 4%. This is the highest the base rate has been for several years and for anyone who didn’t have a mortgage prior to the global financial crisis, at least, unprecedentedly high. Given that there has been an upward trend in the Bank of England’s rate – the official lending rate that generally sets the standard for all mortgage lenders to follow – some borrowers are determined to fix their lending interest rate before this figure goes any higher.
Is This the Right Move to Consider?
Would sticking with a variable rate mortgage, one that tracks the Bank of England rate, be a wiser move? The fact is that no one can say for sure. However, there are some indications that taking a pragmatic review may be the best way to go if your current deal is coming to an end soon. Read on to find out why.
Will Interest Rates Continue to Rise?
The reason that the Bank of England has been putting up interest so consistently over the past 12 months is to try and take money out of the so-called real economy.
In short, it wants people to spend less on consumer goods and leisure activities by making them spend more on servicing their mortgage debt. Why? The simple answer is inflation. By making ordinary householders feel the pinch in their monthly budgets, the bank thinks it will dampen demand for consumer items. In turn, they hope, this will help to bring inflation down.
Given the most recent economic forecasts that the bank’s committee takes into consideration when deciding where to set the official lending rate have been more favourable than many expected, things could change this year. Some economists now think the downturn in the UK economy could be less pronounced and even modest growth could occur by the end of the year. If inflation is brought under control, then it is feasible that interest rates could fall in the next 12 months even if that is to be by a relatively modest amount.
The Potential Downsides & Upsides of a Fixed-Rate Deal
If you are already on a fixed-rate deal that was negotiated before the economic downturn, then it may be best to stick with it for now. According to Pinnacle, a UK-based specialist mortgage brokering firm, opting away from an existing mortgage deal may not be the best strategic move, however it is prudent to weigh-up the pros and cons of moving sooner before making a definitive decision, as even with rates likely higher than what an existing deal would have previously been arranged at, the aggregate interest rate over the initial fixed benefit period may prove to be more stable and attractive to some individuals, compared to the unknown of fluctuating rates that variable deals will bring about and the concerns of what fixed rate may become if further rate hikes are seen.
Some people prefer fixed-rate mortgages because it means they know exactly how much they’ll need to budget for each month. If that’s the case for you, then seeking a competitively priced fixed deal will remain a priority for some. It could also be the right decision if there is something unexpected that happens in the global economy that continues to fuel inflation, meaning that interest rates don’t stabilise or come down, as some now expect.
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