Today’s rates rise from 0.75% to 1% is the fourth increase since December and the first time since February 2009 that the base rate has been at 1%.
The rate rise is in response to rising inflation and to stem the cost of living rises which have been triggered by energy, food and petrol prices.
The base rate determines the interest rate the Bank of England pays banks and building societies that hold money and affects their borrowing rates. By raising the cost of borrowing the effect that there is less demand for it – and people are encouraged to save. However, saving rates are still historically low.
This news will affect homeowners who are on a tracker/variable rate with immediate rises in their monthly repayment. Those with a fixed rate will be unaffected although they are likely to find that remortgaging will be more expensive in the future.
Mortgage rates have already gone up over the past few months from record lows – and this will push them higher still. There are approximately two million homes on a variable-rate mortgage and tracker mortgages – this is around 20-25% of existing mortgage holders. They will see their outgoings squeezed even more. For those near the end of their current deal, they will need to choose between the standard variable rate or a new fixed rate.
Moneyfacts has reported that the average standard variable rate has increased from 4.41% in November 2021 when the base rate was at 0.1%, to 4.75% today.
Switching from a standard variable rate mortgage to a fixed rate deal could substantially cut a borrowers monthly payments and protect them against any further rises.
Homeowners will be locked into a current rate for a fixed term so won’t have any immediate rises. However, remortgaging in future will be more expensive as fixed-rate deals have already seen rises since December 2021. For those with substantial equity or a larger deposit, there are still some good mortgage deals available. For example, for someone with a 40% a mortgage rate of 2.2% on a two-year fixed deal is available from NatWest or 2.24% on five-year term from Nationwide.
Although two-year fixes have been historically cheaper than five-year, the gap is narrowing as borrowers look to lock in their rate for longer.
If you are on a variable or tracker rate we would advise that you talk to an independent mortgage advisor to make sure you are on the best deal for your circumstances. If you are considering a move now or in the near future, contact one of our specialists.