Anybody who has been keeping up to date with the interest rates in the UK, will have noticed that they have increased. As a consequence, this has affected mortgage rates. The reason for why interest rates have increased is because inflation is too high, so this is the best way to lower inflation. In turn, people with mortgages will end up facing higher borrowing costs and certain businesses may face higher loan rates. So, what is the goal of increased mortgage rates?
Ultimately, the goal is to lower inflation, because it is vital to retain money’s value and so that people have more certainty when they are planning for the future. The UK needs to generate a healthy economy, hence the raised interest (and mortgage) rates. Experts in the industry do, however, predict that inflation will fall from the middle of the year.
For people who have a home loan which charges a variable interest rate, they may find that the cost of repayments has increased. Alternatively, if you have opted for a fixed rate, this change will not be clear until the end of the term.
Essentially, having higher interest rates means that people are encouraged to spend less. This means that if less money is spent in the economy overall, the prices of goods and services will rise more slowly, so there will be a lower rate of inflation. The term used to describe this action which has been taken to keep inflation low is called ‘monetary policy’.