On Thursday 17 March the Bank of England increased the base rate from 0.50% to 0.75%. This is the third increase in the base rate since December.
What is the base rate and why does this matter?
The base rate, set by the Bank of England’s Monetary Policy Committee, is the main driver of rates on mortgages and savings products in the UK. Changes in the base rate are usually likely to impact the cost of mortgages and return on savings. Generally, a higher base rate means banks and building societies are likely to increase the cost of mortgages, whilst savers can expect a slightly higher rate of interest on their savings. However, this isn’t always necessarily the case.
Why is the base rate increasing?
Base rate is increasing as a response to rising inflation. The Consumer Price Index (a measure of the costs of goods and services) hit 5.4% in January, well above the Bank of England target of 2%. By increasing the cost of borrowing, the Bank of England hope to reduce rising inflation.
Have the tragic events in Ukraine had an impact?
While the crisis in Ukraine is certainly not the primary factor behind the rate rises, it has exacerbated the cost of living in general, as global energy and food prices continue to rise.
What does it mean for my existing mortgage?
Four out of five mortgages in the UK are currently fixed rates. This means that borrowers will not see an immediate increase in the cost of their mortgage.
For borrowers on a variable rate mortgage, including a Standard Variable Rate mortgage, rates are likely to rise, though this depends on the type of variable rate mortgage you have.
For those on a tracker mortgage, which directly follow the Bank of England base rate, your rate is likely to increase by 0.25% immediately and payments go up from next month.
For those on a discounted rate, or Standard Variable Rate mortgage, your lender may decide to pass all, some, or none of the increase in rates on to you, but will write to you before your payments increase.
What does it mean for mortgage rates?
For the 80% of UK borrowers on a fixed rate, this rate change will not yet impact your monthly payment. For those approaching the end of their existing mortgage deal, looking to purchase a property with new mortgage, or already on a Standard Variable Rate, it is likely that rates will increase.
However, this rate rise had been well forecast in advance of the recent increase and many lenders had already factored the increase in costs into new mortgage deals on sale. Some lenders will, however, withdraw mortgage rates and launch new products with higher rates.
However, despite the two recent increases, the base rate is now at the same pre-pandemic level of 0.75% and mortgage rates in general are low when compared to historic levels.
What does it mean for my mortgage offer?
Those customers with existing mortgage offers will not see rates increase for as long as the mortgage offer remains valid.
Is there likely to be further increases to the base rate this year?
With inflation continuing to surge, it is anticipated there will be further increases to the base rate throughout 2022.
What should I do?
In any event, the best course of action is to seek advice. Your mortgage adviser can help you with understanding how the increase in base rate might impact you, explore your options for remortgaging or switching rates, and give you help to access support if you think you may encounter difficulties in paying your mortgage.
For more information about the base rate changes, and what they could mean for you personally, please don’t hesitate to get in touch with the team at Cooper Associates Mortgages. We will continue to keep a close eye on rates in the coming weeks and will then advise our clients accordingly.
If you are due to remortgage in the coming months, we advise you to speak with one of our mortgage advisers as soon as possible, to take advantage of the best rates available. A mortgage offer can be obtained up to six months in advance, allowing you the peace of mind to secure a rate now and not be affected by any future increases to the base rate.
You can book a consultation with Cooper Associates Mortgages today by visiting https://www.cooperassociatesltd.com/contact-us/book-an-appointment/
