Homeowners were facing higher interest rates if inflation did not respond to the efforts by the Bank of England’s Monetary Policy Committee (MPC). In the start of 2023, the inflation rate was double digits, a bit over 10%, having come down from the peak of 11.1% reported in October 2022. The MPC had been fighting to tame inflation since December 2021, and when the peak hit in October 2022, many homeowners were sitting safe in their historically low two-year fixed rate and shielded from rate hikes. Come 2023 and mortgage terms ended leaving homeowners with a choice from much higher interest rates. The same will occur in the year ahead.

In August of this year, the inflation rate declined to 6.7% from 6.8%, but remained steady in September. It encouraged the MPC to leave the standard base interest rate at 5.25% with no increase.

In October, the MPC did not meet, but the recent report on inflation showed a decline from 6.7% to 4.6% and that could create a buffer against future rising rates. This would be good news for homeowners as it could confirm what had been suspected in that the current rate might be at peak level of 5.25% which is a 15 year high.

There are those that caution the drop in inflation could be hiding the true factor of the recent decline and it might not be the MPC’s base rate increases. The main reason could be due to the energy price cap, which limits the charge per unit of energy of suppliers to consumers. 

Grant Fitzner, chief economist at the Office for National Statistics (ONS), remarked the price rises declined in October as “last year's steep rise in energy costs has been followed by a small reduction in the energy price cap this year”.

The energy price cap is helpful, but it is not expected immediately to assist consumers, for while energy costs will be less this winter, the government support for energy bills is no longer in place to help consumers’ household budgets. It means they could be paying more for energy this winter than last despite lower prices and a cap on supplier charges.

Also, the decline in the inflation rate does not mean that the cost of goods and services is cheaper for consumers, but instead indicates that prices are rising at a slower pace.

The impact of inflation will remain for months to come, and experts believe the coming year will involve continued financial struggles. Unfortunately, it is feared that inflation will set in, and the higher prices will remain and become a new normal.

Homeowners will be struggling from the impact of inflation as well as the higher cost of borrowing. They might also be coming to the end of their fixed mortgage term in the coming year and will have to dig deeper into their budget for their repayments.

The MPC began increasing the standard base interest rate in December 2021 when the rate was at an all-time historical low level of 0.1%. The next fourteen consecutive MPC meetings resulted in a rate hike. However, in comparison to current rates, those set in 2022 were much more attractive. In January 2022, there was not a MPC meeting following the previous one in December and the rate reflected the first of the fourteen increases of December at 0.25%. By June 2022, the rate had risen to 1.25%, and in August the MPC became more aggressive in the fight against inflation and increased the base rate to 1.75%. By November, the rate was 3.0% and the year ended with the rate at 3.5%. 

Therefore, the one-year comparisons amount to November 2021 at almost zero at 0.1%, to November 2022 at 3.0%, and November 2023 at 5.25%. The cost difference for homeowners which have borrowing costs tied to a large amount of debt is substantial.

Overall, it is good news that inflation has declined, but homeowners will not quickly see relief, and interest rates will remain for months to come. How long is unknown. 

This is why homeowners are encouraged to consider a remortgage in many different scenarios. Those that are close to the expiration of their mortgage should shop for a remortgage to determine what benefits could be found. Those who already transitioned to their lender’s standard variable rate (SVR) having chosen not to remortgage when their term ended, would likely find savings with a new deal and the opportunity to escape a variable rate for the popular fixed rate. 

The final month of the year will include another meeting of the MPC, and while there is not any expectation of a rate increase, a cut is not likely either. Homeowners will have lost the option of record setting low rates of before, but there is still the opportunity to choose from lower interest rate remortgages, to lock in a rate with a fixed rate deal, and find peace of mind as the economy adjusts and a possible new normal sets in.