Interest rates hit 5% – consumer credit industry reaction

23rd June 2023

The Bank of England has hiked interest rates by 0.5 percentage points to 5%.

Rates have now hit the highest level in 15 years it’s the 13th time that the Bank of England has increased bank rates, with its Monetary Policy Committee (MPC) voting by a majority of seven to two to raise rates by 0.5%.

Responding to the Bank of England’s latest Bank Rate decision, announced today, David Postings, Chief Executive of UK Finance, said “Lenders are ready to support customers who are feeling the strain from the rising cost of living. Over 80 per cent of homeowners are on fixed rate deals and will be protected from any immediate rise in mortgage repayments following the Bank Rate increase. Those customers who are due to come off their fixed rates later this year are, however, likely to face higher monthly repayments.”

“Lenders are prepared to help anyone struggling with their mortgage payments. If you are worried about your finances, do get in touch with your lender early to discuss the options available. They have teams of experienced and understanding advisors who will develop a solution tailored to your individual circumstances. Making a call to your lender to discuss the options available will not impact your credit score.”

“Importantly, the level of homeowners in arrears remains low, meaning that most households are able to keep up with their monthly payments.”

Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust said “Today’s interest rate rise, the thirteenth in a row, will pile more pressure onto the many households already struggling. For homeowners whose monthly repayments have increased, the strain is already starting to show – with one in five saying they are already having trouble affording repayments. Higher mortgage costs also lead to higher rents, making this an incredibly worrying time for many tenants.”

“Lenders already have a range of options they can use to help people in difficulty with their mortgage. However, lenders, regulators and government must act to ensure these options, like switching to interest-only for a short period, payment holidays and extending mortgage terms, are readily available to anyone who needs them. This must include giving people flexibility to reverse any changes if and when someone’s situation improves.”

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said “Better savings rates are the silver lining to come from persistently high inflation. As a result, customers loyal to high street banks are potentially paying a high price for their loyalty by missing out on better rates.”Simon Webb, Managing Director of capital markets and finance at LiveMore, said “The Bank of England’s Monetary Policy Committee has been spooked by the unexpected inflation figures yesterday showing stalemate in consumer price inflation and a rise in core inflation. We are still waiting for the previous base rate rises to filter through to the inflation figures but the impact is slow and laborious.”

“During the 13 years of low interest rates we had become used to, the Bank said that when rates do rise it will be a slow process, but the opposite has happened. The unprecedented 13th consecutive rise in the base rate in 18 months, with further rises anticipated, is a price Chancellor Jeremy Hunt is willing to pay as bringing down inflation is the government’s ultimate goal.”

“This latest rise is likely to be reflected in swap rates, which have almost doubled in the past year and therefore fixed rate mortgages will continue to be more expensive.”

Richard Carter, CEO of Lenvi said “Consumers have been hit with a double whammy this week. Inflation remains extremely high at 8.7% and after almost 15 years of considerably low interest rates, this latest and unwelcome hike to 5% is going to send shockwaves through households all over the country.”

“Stubbornly high food, energy and fuel costs combined with rising mortgage costs may be too much to bear for many households who 12 months ago, weren’t budgeting for or anticipating these cost pressures.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said  “Yesterday’s shock rises in core inflation drove away any last vestiges of doubt about the need for more rate rises, and the Bank of England has delivered. A punishing 0.5 percentage point hike to 5% signals that it’s prepared to do whatever it takes to squeeze inflation out of the system. It’s a horrible blow for millions of mortgage holders.”

“Tracker rates will rise with every Bank of England hike, and there’s a strong chance that most SVRs will increase too. Plenty of people whose fixed deals came to an end in the past six months or so have switched onto a variable rate mortgage in the hope that fixed rates would fall. The fact that they’ve stayed so alarmingly high means this is proving a very expensive strategy.”

“Those on a fixed rate mortgage are protected for now, but the threat of a remortgage will be keeping millions of people up at night. Over the past month, new fixed rate deals have climbed alarmingly. This morning’s Moneyfacts figures showed the average 2-year fixed rate deal hit almost 6.2%, while the average five-year deal, pushed over 5.8%. It’s not quite at the nightmarish levels we saw in the aftermath of the mini budget – but it’s not far off.”

“The problem isn’t just today’s hike, it’s the fact the market is worried that inflation is so entrenched that we’re going to need even more rises in the coming months. It’s currently pricing in five more hikes, to just under 6% in March 2024. Higher rate expectations are being priced into fixed rate mortgages, which continue to ramp up. The fact that the Bank has delivered such a big hike today will cement the market’s conviction that more rises are on the cards, and that’s going to filter through into even more painful rises in mortgage rates.”

“All of this is a nightmare for anyone going through a remortgage. Current rates are streets ahead of what most remortgagers are currently paying – because most fixed for less than 2%. Someone moving a 25-year £200,000 mortgage from 2% to 6.2% could find their monthly payment rising around £465 to £1,313. Our research shows that more than nine in ten people would run into financial trouble with a rise of that size.”

“There is some hope though, because while we are very likely to see more rate rises, by pricing in so many, the market may be overdoing things. It takes time for rate changes to have an impact on inflation – and at a time when so much of the mortgage market is fixed it’s may well take longer than had been expected. Such a big rise today may well provide such a shock to the system that inflation could start to retreat without us needing quite so many hikes.”

“In the interim, if rates are still horribly high when you need to remortgage, it’s worth talking to your lender, because the FCA has issued new guidance encouraging them to be more flexible with people facing a mortgage crunch. It may be possible, for example, to extend the term of your mortgage for a while, in order to lower the monthly payments, without going through a full affordability check. You could also consider moving to interest-only payments on a temporary basis. There will be an affordability test, and the FCA will want proof you are making plans for how to repay the capital. However, your plan may simply be to revert to a repayment mortgage in the near future, so you can make a temporary change without having to suddenly find the cash for a repayment vehicle too.”

Rachel Springall, Finance Expert at, said “Borrowers may be deeply concerned to see another base rate rise, particularly if they are sitting on a Standard Variable Rate (SVR) or are about to come off a low fixed rate. Amid a cost-of-living crisis, rising interest rates can have a devastating impact on borrowers who are already struggling to cover their monthly essentials and could well lead to a rise of ‘mortgage prisoners’. Those borrowers who are still on a competitive fixed rate deal for a few more years may want to consider overpaying their mortgage to reduce the size of their loan. However, those aiming to refinance on a fixed mortgage right now will find rates are around 3% more than they were a year ago. Despite rising fixed rates, it’s still worth considering a switch from a Standard Variable Rate for more peace of mind to guarantee the monthly mortgage payments, as the average SVR has risen to its highest point in over 15 years. A rate rise of 0.50% on the current average SVR of 7.52% would add approximately £1,576* onto total repayments over two years.”

“Affordability remains a key concern for any borrower, some first-time buyers may put their plans to jump onto the property ladder on hold in hopes the housing supply shortage will improve and interest rate volatility calms. It is imperative new buyers can comfortably build a large enough deposit and meet their mortgage repayments, which may be challenging to meet if they have limited disposable income. Consumers looking to remortgage may find it difficult to afford higher interest rates, so seeking independent advice is essential to consider every option available to them, such as downsizing.”