Find out instantly how much you can borrow


Interest Rates Rise to 1% - But What Does It Mean?

The cost-of-living crisis continues to cause an increase in goods and services, from fuel to food. To combat soaring inflation, interest rates have also increased. This has made borrowing money more expensive, affecting those with a mortgage or anyone looking to get one.

The Bank of England base rate has increased four times since December due to the rise of inflation. Now sitting at 1%, what does this mean and how will it impact those with a mortgage?

This article will explain what the increase means for those with a mortgage, how interest rates work and what it means for the housing market.

If you require further information or guidance about your mortgage, our experts are on hand to help. Get in touch with Mortgages Online today for any mortgage enquiries. Give us a call on 03300 58 60 58 or email at

What Is the Bank of England Base Rate?

The Bank of England base rate is the level of interest most banks charge on things like mortgages. Many other banks will follow this rate, so when The Bank of England increases the base rate, it’s likely they’ll follow. It has now reached 1%, from 0.75% on 5th May 2022.

This rate has previously been as low as 0.1% in March 2020 until December 2021. The rise of inflation caused the BoE to have to increase it. As the cost-of-living increases, it is thought that interest rates will continue to increase past 1% in 2022.

How Is the Interest Rate Set?

The base rate is decided by The Bank of England’s monetary policy committee (MPC), changing roughly eight times every year. Several meetings will be held to discuss the current financial climate and whether action needs to be taken in response.

The rate of rising inflation in the UK will also be considered, which increased to 9% in April 2022. Increasing interest rates is usually done to try and slow down rising inflation.

How Does Inflation Affect Interest Rates?

When interest rates rise and borrowing money becomes more expensive, this means consumers have less money to spend. This causes demand to fall and the economy to slow down and the prices of goods to also fall.

When interest rates are low, borrowing money is cheaper. This can cause the rate of inflation to rise.

What Does the Increase Mean for Your Money?

When interest rates increase, people are more likely to want to save money instead of spending it causing the rate of inflation to fall.

It’s more expensive to borrow

When the BoE increases the interest rate, this means it’ll be more expensive to get a mortgage. However, this will depend on the mortgage deal you have. For example, a fixed rate mortgage means your interest rate will stay the same until your deal ends. When interest rates are low, it’s a good idea to try and get a fixed rate deal when getting a new mortgage.

Better saving rates

When interest rates are high, people get a higher return when they save their money due to higher rates on saving accounts. This can usually cause the rate of inflation to fall due to people spending less money.

Will The Interest Rate Increase Again?

Although the rise to 0.25% at the end of 2021 surprised experts, another increase is likely. This is because The Bank of England is eager to stop inflation rising any further, and a way to do this is by increasing rates.

Should I Remortgage for a Fixed Rate?

With the idea of rates rising further, you may be thinking about remortgaging to get a better rate. A fixed rate deal is one way to prevent paying any higher rates. However if rates fall after you’ve signed a fixed deal, you will still have to pay the higher rate.

Looking to remortgage? Here are some tips:

  • Fixed-rate deals go fast if rates are likely to increase.
  • Check for early exit fees to switch as well as other expenses including arrangement and valuation and solicitor fees.
  • Use a mortgage calculator and factor in extra fees to see if remortgaging to a lower rate will save you money.
  • Don’t go for the first one you find, shop around to find a good deal.
  • Get advice for a mortgage advisor – we can help you.

How Will the Interest Rate Rise Affect the Housing Market?

When interest rates go up, mortgage costs also increase. This will increase your overall loan, making it more expensive to buy a house.

However, it can also have an impact on house prices. When interest rates increase by one percent, it can reduce house prices by 2% to 11% according to the Bank of England’s deputy governor Sir Jon Cunliffe. Other experts say that the current housing market will withstand any rise in interest rates due to the demand.

Is It a Bad Time to Buy?

It’s no secret that the housing market has increased in price significantly over the last couple of years. And with the demand there, it doesn’t seem to be slowing down any time soon. However, some experts believe that house prices may fall by 5% in the next two years, so it could be a good idea to start thinking about buying.

The property market was expected to decrease due to COVID, but it has defied the odds and the demand continues to increase. This makes it tricky to forecast the future of the market.

Reasons why house prices have increased so significantly over the last couple of years include:

  • High demand
  • Low supply of houses
  • Lower mortgage rates
  • Stamp duty holiday (which ended in 2021)

The cost-of-living crisis may cause a drop in demand for houses, but rising rates can make it difficult to find a cheap mortgage deal. It’s therefore important to keep a close eye on the current market if you’re wanting to buy soon.


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

Apply for a new mortgage today!

  • Get free help and advice from one of our professionals
  • We compare more than 12,000 mortgages from over 130 lenders
Back to Articles

Mortgages made easy.

We make mortgage applications easier and pride ourselves on our professional and customer sentric approach to securing mortgages for our customers. We are online mortgage brokers. We are MO.

New Mortgage Remortgaging
This website uses cookies. By continuing to use this site, you are agreeing to our use of cookies click here for more information. Close