Following the bank rate increase from the historic low of 0.1% to 0.25% in December 2021, the Bank of England has once again increased the rate to a new level of 0.5%. This was decided with a majority vote of 5-4 by the Monetary Policy Committee. The decision has been made in a bid to combat the high inflation rate.
Why has the base rate increased again?
With inflation at its highest point in almost three decades, it’s now over the 2% target and expected to continue rising to reach over 7% in April. By increasing the base rate again, it’s hoped that the level of inflation will decrease rather than continue spiralling. The aim is to see a return to the target of 2% to help the UK economy recover.
How does this affect your mortgage?
The base rate determines how much interest is repaid to the Bank of England by commercial banks for the loans they’ve received. The increased base rate makes their repayments higher. One way to recoup their costs is to increase the interest rates charged to their customers. Therefore, depending on the type of mortgage you have, your mortgage rate may now increase.
A fixed rate: As your rate is fixed for a specific term, you can rest easy knowing that the amount you currently pay will stay the same until the end of that term. When you look for new deals to switch to towards the end of the term, just be aware that the interest rates may not be as competitive as the one you’re paying now.
A variable rate: Mortgages with a variable rate are affected in different ways.
- If you have a tracker mortgage, you pay a fixed percentage on top of the base rate. Now that the base rate has increased by 0.25%, the interest rate you pay for your mortgage will increase correspondingly.
- If you pay a standard variable rate (SVR), this is set and adjusted by your lender regardless of the base rate. The increased base rate means the lender will have to pay more. Therefore, it’s likely they’ll pass on this increase to you. It’s important to know that they can increase your interest rate by an even higher amount than the base rate hike.
- If you have a discounted mortgage, which gives you a discount on the SVR, be prepared for your lender’s SVR to increase as they try to offset the higher rate they have to pay.
What action can you take?
This new base rate is lower than the one before the pandemic began, which was 0.75%. However, the rates are expected to climb again in the future. In fact, during the vote, four members of the Monetary Policy Committee voted to increase the rate to 0.75%. This committee discusses the base rate eight times each year — with the next review to be held on 17th March. Therefore, it’s best to be prepared for further increases.
Do you have a mortgage with a fixed rate that’s reaching the end of its term? Then begin your search for a new deal before the rates climb any higher. If you pay a variable rate for your property in Bexleyheath, it’s worth considering the switch to a fixed-rate deal. This will help to keep your repayments as low as possible.
Speak with your mortgage broker
Contact your mortgage broker in Kent, London or Edinburgh to discuss your current mortgage deal and the alternatives available. They can search for the most competitive arrangement to suit your needs and circumstances. This will take into account any early repayment charge you may be liable for with a remortgage. It’s best to act sooner rather than later to secure a new deal before either your lender increases their SVR or lenders across the board react to this new increase and begin raising their rates. If you’re a first-time buyer, try to secure your first mortgage while you can still benefit from competitive mortgage deals.