How 2022 affected our economy and the mortgage market


The UK experienced a 40-year low

Across 2022, as a country, we saw not one, not two, but nine increases from the Bank of England (BoE), taking the base rate from 0.25% to 3.5% by the year’s end – the steepest annual increase in over 40 years.

These rises were all driven by a desire to gain control of the significant inflation that has quickly flowed into our economic system. Thankfully, the impact of this has been limited, as much of the inflationary pressure came from the supply side.

The cost of living crisis

Tailwinds from the COVID-19 pandemic had an impact on the UK economy, with stalled supply chains causing scarcity of essential goods, combined with exaggerated government debt.

The war in Ukraine exacerbated matters, with Ukraine being one of the world’s major wheat producers and Russia being one of Europe’s largest natural gas suppliers. Both essential commodities saw dramatic increases in cost as demand massively outstripped supply, leading to the current inflationary environment.

Having seen inflation rise from a level of 2.1% in May 2021 to 10.7% in November 2022, the BoE have had little option other than to hike rates.

How has the mortgage market been affected?

The mortgage market was forced to adapt to this changing environment, taking rates from historic lows to levels not yet seen by the UK’s youngest generation of borrowers.

Borrowers have suffered greatly as a result and more so after the now infamous mini-budget that took place on September 23rd. The market interpreted the ex-chancellor, Kwasi Kwarteng’s tax-cutting agenda as reckless and ill-timed, subsequently causing a very sharp rise in the cost of borrowing.

With the banks taken by surprise, this resulted in panic across the lending market, causing lenders to either temporarily withdraw rates from the market, or hike them by levels of around 1% overnight.

What does all of this mean for interest rates across 2023?

We are likely to see further increases in the BoE base rate over the early part of 2023, although the general consensus among commentators is that we are approaching the peak of this cycle, with some expecting to see the base rate pull back by the end of 2023.

This will of course depend on the levels of inflation and whether that marker is declining at the desired rate. However, we are at present in an unusual position where we are seeing lenders decreasing their fixed rates weekly, despite the likelihood of the base rate increasing.

Ultimately, the banks are in the process of reducing some of the sharp increases that were imposed post-mini-budget as the SWAP rates have fallen, and as a result, mortgage rates have also fallen back to similar levels seen pre-23rd September 2022. As such, we expect the fixed rates to continue to fall in the early part of 2023.

Will mortgage rates ever be so low again?

Sadly, the days of mortgage fixed rates in the UK starting with a 1 or 2 are not likely to return anytime soon. Instead, fixed mortgage rates should show modest declines over the next year with rates being offered between 3%-4.5% as we move into 2024 – assuming of course we do not suffer any further unforeseen market shocks.

We fully expect this to become the ‘new normal’, though it is important to consider that the rates we were enjoying at levels below 2% were the exception rather than the rule.

The financial crisis of 2008 resulted in the UK entering an unprecedented period of low-interest rates, but it is important to contextualise this, as prior to this point, the BoE base rates typically ranged from between 5%-10% (and often more), over the majority of the previous 30 years.

Today we sit at 3.5% and between January 1975 and October 2008, the lowest level the BoE base rate reached was 3.5%, which was an isolated low between July & November 2003. Ultimately, we remain in a very low-interest rate environment.

Is now the time to buy?

It has been much publicised that the housing market conditions have changed, with the dampened demand buyers now have a greater advantage and some potentially good opportunities over the coming months.

Furthermore, with rental prices increasing, now would be the time for first-time buyers to get on the property ladder if they can. Particularly, if they can benefit from any of the following resources:

  • Guarantor mortgages
  • A high loan-to-value lender offering
  • Equity release for parents/grandparents to gift deposit

The above resources can aid buyers in finding a solution that allows them to get on the property ladder sooner than they thought possible and prevent them from paying potentially high rents.

What about Remortgaging – is now the time?

If you have a mortgage that is coming up for renewal, obtaining expert advice can assist in making an informed plan and may even save you money in the long run. 

We are recommending that clients maintain a dynamic strategy, and review their options 6 months in advance. If the rates are scheduled to change throughout that period, we will continue to review the market ensuring the best options are utilised.

Not making a plan could result in a costly alternative, as the cost of reverting to a Standard Variable Rate (SVR) would be hugely unpalatable for most.

Additionally, we have advanced AI technology that will continue to review the market for you throughout the application process to ensure we are always locking you in the best available rate.

To understand your remortgage options, our expert advisers can support you – book your free consultation here.

Related Articles

Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.