Bank of England has increased the base rate to 3.5%
On Thursday 15th December 2022, the Bank of England increased the base rate to 3.5%. The base rate is set by the Bank of England’s Monetary Policy Committee. Who 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 base rate increasing?
The base rate is increasing as a response to rising inflation. The Consumer Price Index (a measure of the costs of goods and services) is currently 10.7%, which is well above the Bank of England’s target of 2%. By increasing the cost of borrowing, the Bank of England hope to reduce rising inflation.
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 immediately and payments will 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 has been well forecast in advance of the increase on Thursday 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. Although we are starting to see more mortgage stability following the mini budget in September 2023.
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.
What should I do?
In any event, the best course of action is to seek advice, we can help you understand 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.
If your current mortgage deal is expiring within the next 6 months, you can look to secure your mortgage product now, before your fixed rate product ends. For more information about the base rate changes, and what they could mean for you personally, please don’t hesitate to get in touch at Lyndsey.pickering@pfmdental.co.uk.
