Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within was correct at the time of publication but is subject to change.
9th February 2023
How Does The Bank of England Base Rate Impact Mortgage Rates?
‘Bank of England base rate increases to…’
‘The impact of a rate rise will be felt by borrowers – through high mortgage and loan costs…’
‘Interest rates now stand at the highest point since October 2008’
Well, the media paints a gloomy picture, don’t they? But what does it really mean, how does the Bank of England base rate impact mortgage rates?
First, some context.
At the point of writing (Feb 2023) the Bank of England has increased the base rate for the tenth straight time with an aim to battle inflation. The Bank of England current base rate is 4%.
Although mortgage rates have slowly been increasing from the historic lows we saw in 2021/22 when Liz Truss delivered her mini-budget in September 2022 mortgage rates have rocketed causing a lot of panic in borrowers.
But, What Is The Bank of England Base Rate?
The Which website puts it quite well, so I’ll just quote that for this point:
‘When the Bank of England lends money to commercial banks, the banks must pay interest, and the amount is determined by the base rate.
The base rate will also impact on ‘swap’ rates, the interest rate banks charge when lending to each other. If the base rate rises or falls, lenders often pass these costs on to consumers by raising their own interest rates on loans or savings products.
While that might sound complicated, it essentially means the base rate will impact two areas of your finances: how much interest you can earn on your savings and how much it costs to borrow money.’
Even more simply:
The lower the base rate, the lower the interest rates for borrowing money (yay!), but you’ll also receive less interest on your savings (boo!).
The higher the base rate, the higher the interest rates for borrowing money (boo!), but you’ll also receive more interest on your savings (yay!).
How Does Base Rate Affect Mortgages?
A mortgage is a large loan secured on property, so money you are borrowing. So, based on my previous couple of statements, ‘the more the base rate increases, the higher the interest rates for borrowing’. Therefore, as the base rate is going up, so are mortgage interest rates.
As mortgage interest rates have been so low for so long, most people are on fixed rates. A fixed-rate means that your mortgage interest is fixed for the duration of your initial period (typically 2-5 years). This means that while you’re in your fixed rate deal these changes won’t have impacted you but when your deal expires, you are likely to find the new rates you can secure are higher and will cost more.
Some people are on tracker or variable mortgages though. These people will have noticed the changes immediately. A tracker mortgage tracks the Bank of England Base Rate so as the base rate has increased, so has your interest rate and monthly payment. Other variable rates may not track the Bank of England rate in such a straightforward way but are also likely to have increased when the base rate has.
Do You Have A Mortgage Currently? Preparation is Key!
If you have a mortgage, your fixed rate will end at some point. You need to be prepared for what this will mean. Similarly, most tracker/variable rates will end at some point.
Contact your bank or dig out your original mortgage documents and find out when your current rate expires. Put this date in your diary so you don’t miss it!
At the end of your initial mortgage term (typically 2-5 years), your mortgage will most likely revert to the lender’s Standard Variable Rate. More often than not, this ‘SVR’ is much higher than your current rate and much higher than the rates you could secure by arranging another deal.
Higher rates mean higher payments!
You can secure a new mortgage rate up to 6 months before the end of your current deal expires. It is vital you do this to give yourself as much time as possible before your mortgage reverts to a higher SVR payment.
Contact us (details at the bottom) and we can run through all potential options with you so that we can help you prepare and secure the best rate available when remortgaging.
There are some things we can do with your mortgage to reduce the impact of the higher rates now so that your mortgage doesn’t jump up too much. We can extend the overall term, we can look at the cheapest rates, and we can potentially switch to an interest-only mortgage. All worth exploring with an expert so we can highlight the positives and negatives of each as well as the real cost and effect on your monthly payments and mortgage overall.
Are You Looking to Buy a Property?
Is it the right time to buy a house?
Should I buy or should I rent?
How much will a mortgage cost per month?
We get asked these questions all the time and as always, preparation is key!
As Brokers, we are best placed to help you. We look at the mortgage market and interest rates every day, for hours and hours on end. We can run through your details and give you real figures for how much you can borrow and how much that might cost as a first-time buyer. We can discuss different types of mortgage rates (fixed/variable, etc), we can discuss longer and shorter-term mortgages and we can give you our expert opinions on the trends we are seeing in the market to help you make the important decisions.
At a time when rates are increasing as well as the cost of living in many other areas, preparation is so important. Talk to an expert and then we can give you some real information so that you aren’t led by assumptions and opinions.
Next Steps To Beat The Base Rate Increase
We will be more than happy to talk through all the options open to you, as any great Broker should do.
Do give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.
Alternatively, you can email enquiry@lloydwellsmortgages.co.uk and let us know how we can help you.
We will discuss:
• How much you can borrow
• What that will cost
• What fees can you expect
• How Lloyd Wells Mortgages work
• What insurance you will need
• What documentation you will need to provide
• Next steps
Your home may be repossessed if you do not keep up with the repayments on your mortgage.
