What 12 months of interest rate hikes did to our finances and what to do next year

The last time the bank rate rose this fast for 12 months was more than three decades ago, in 1989. The speed with which higher interest rates were passed on to borrowers has surprised even seasoned professionals.

Lewis Shaw, of Riverside Mortgages, said: “The scale and speed of mortgage rate increases have been staggering.

“Just 15 months ago, you could get mortgage rates below 1%, while the average is now closer to 5%, that’s unprecedented.”

Lenders use the bank rate, along with gilt yields and market “interchange rates,” to price transactions. Since December 2021, the average two-year fixed mortgage rate has increased from 2.34% to 5.84%, according to Moneyfacts, a data company. A typical buyer taking out a £200,000 loan will now pay an extra £583 a month in interest than if they had locked in a rate at the end of 2021. The average two-year tracking contract, which fluctuates according to the Bank of England, has risen from 1.58pc to 4.03pc in the same period.

The bank rate stayed below 0.75% between March 2009 and May 2022, meaning many borrowers who remortgage this year and next will have known nothing but low interest rates. Joshua Gerstler, of The Orchard Practice broker, said: “I see the shock people feel when they realize how much more their monthly payments are going to be. There are many out there who are simply not going to be able to pay.”

New and recent buyers will be more exposed to rising interest rates, since they have had fewer opportunities to add equity to their property.


While lenders passed rate increases on to mortgage borrowers overnight during 2022, banks have been slow to pay savers higher interest rates.

Santander increased the interest rate charged to borrowers on its standard variable rate (SVR) arrangements by 2.9 percentage points from December 2021, according to Moneyfacts. But a customer with £10,000 in their daily savings account has benefited from an interest rate increase of just 0.39 percentage points, from 0.01% to 0.4% last year.

Likewise, Barclays and Lloyds raised some of their floating rates by 2.9 percentage points, but only passed on a 0.49 percentage point rise to customers with £10,000 in their daily and easy savings accounts, which pay 0. 5 %.

Rachel Springall of Moneyfacts said: “It’s clear that some of the big banks have passed on every bank rate hike to their mortgage customers, but not to their loyal savers.”

Even in the financial crisis, savers could get better returns on their cash than they do today. The best easily accessible account for a £10,000 deposit in November 2008 (the last time the bank rate was 3 per cent) paid 6.56 per cent. Today he pays less than half that, at 2.97% with HSBC.

This year, savers have also had to deal with double-digit inflation, where economists believe it will remain next year. Inflation is a death sentence for cash savings. At 10.7% inflation, £10,000 will be worth £8,930 in 12 months.

What 2023 will bring

Markets expect the Bank Rate to peak at 4.5% in the first half of next year, one percentage point higher than today.

Simon French of Panmure Gordon, an investment bank, said: “We are three quarters of the way through this bullish cycle. If borrowers have gotten this far, they have already absorbed 3.4 percentage points and most of the pain. The obvious caveat is that for those who have not remortgaged yet but will do so in the coming months, that will be a big surprise.”

However, additional bank rate increases may not necessarily filter into the prices of all fixed-rate mortgages.

Lenders have started lowering their prices in recent weeks and some brokers believe the worst of rate hikes is over. The two-year average rate had fallen to 5.84% on Thursday of this week, down from 6.01% at the beginning of the month.

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