Interest rates have been raised to 3% - the biggest single increase since 1989.
This is the eighth consecutive hike made by the Bank of England to the base rate since December last year.
And, whilst the 0.75% increase had been widely predicted, it will come as a blow to borrowers. What’s more, it came with warnings the UK was set for a recession in 2023.
Steve Seal, CEO of lender, Bluestone Mortgages, said: “Today’s decision will be a tough pill to swallow for consumers and borrowers across the country as rates rise for the eighth consecutive month amid the ongoing cost of living crisis.
“We have already seen a dip in the number of mortgages in the past month as consumers across the country grapple with high-interest rates and the squeeze on their personal finances. Affordability challenges will no doubt continue to be the key issue for most people in the coming months.”
If you are on a fixed-rate mortgage your rate will not change. You will remain on that rate until your deal expires. For those on tracker mortgages, you will see an immediate change to your rate following today’s rise.
Should I move to a variable or tracker deal?
If you are on a fixed-rate deal which is due to expire, you may be feeling concerned. Indeed, fixed -rate mortgage rates have been rising rapidly in anticipation of today’s steep rise in the base rate, which has been on the cards since the mini-Budget on 23 September.
Although fixed-rate mortgages provide a shelter from future rate hikes, the new deals coming to the market have been soaring in price in recent months.
According to Moneyfacts.co.uk, the average five-year fixed rate is currently 5.32% – which compares to 2.99% this time last year. Meanwhile, the average Standard Variable Rate (SVR), which is the rate to which people default when their deal comes to an end, is currently at 5.86%.
| Mortgage market analysis (Source: Moneyfacts.co.uk) | ||||||
| Average mortgage rates | Nov-17 | Nov-20 | Nov-21 | Dec-21 | Oct-22 | Nov-22 |
| Standard variable rate (SVR) | 4.60% | 4.44% | 4.41% | 4.40% | 5.63% | 5.86% |
| Two-year fixed mortgage | 2.33% | 2.43% | 2.29% | 2.34% | 5.43% | 6.47% |
| Five-year fixed mortgage | 2.88% | 2.70% | 2.59% | 2.64% | 5.23% | 6.32% |
| 10-year fixed mortgage | 3.06% | 2.84% | 2.99% | 2.97% | 5.41% | 5.65% |
| Average rates shown are as at the first available day of the month, unless stated otherwise. Source: Moneyfacts.co.uk | ||||||
The Bank of England predicted today interest rates would rise to 5.2% at the end 2023 then begin to fall. This may add further appeal to tracker mortgages, which follow the base rate, or lenders’ SVRs.
Emma Hollingworth, distribution director at MPowered Mortgages, said she had seen rising demand for tracker products, as well as longer term fixes. But, she warned: “Suitability of products will of course continue to depend on individual circumstances and a joined-up approach from those within the industry is needed when it comes to meeting homebuyers’ needs at this time.”
Meanwhile, Rachel Springall, finance expert at Moneyfacts, said whilst fixing for the longer-term may be an attractive choice for those who want peace of mind with their mortgage repayments whether now is the time to take out a new deal will depend on someone’s circumstances. This was particularly true for first-time buyers, who may be struggling to build a deposit and who have limited disposable income.
Rachel added: “That said, because of rising house prices, those remortgaging may find they have more equity in their home to drop down into a lower loan-to-value bracket, where more competitive interest rates could be found.”
Is it worth leaving your current deal early to avoid further hikes?
Rachel said it was unknown whether borrowers would be better off coming out of their fixed mortgage deal early to refinance right now or wait and fall onto their revert rate, because everyone’s circumstances were different.
But, she added: “Sitting on a variable rate does not guarantee peace of mind in the months to come.
“Depending on how long someone has left on their fixed deal, they may be prepared to accept an early repayment charge to potentially save on their monthly repayments overall with a new deal amid rising interest rates.
“The average standard variable rate (SVR) has steadily been rising, and a further rise of 0.75% on the current SVR of 5.86% would add approximately £2,223* onto total repayments over two years.”
What to do if you have questions about your mortgage?
Despite the sharp increase in the interest rates, experts are advising those with mortgages not to panic. The recommendation for anyone with concerns about rising costs is so speak to a mortgage adviser to gain a tailored insight based on your personal circumstances.
Vikki Jefferies, proposition director at PRIMIS Mortgage Network, said: “The 0.75% base rate increase will have ramifications throughout the mortgage market. However, now is not the time for people to panic.
“The mortgage advice sector exists to guide consumers through periods like this. As a result, consumers need to seek out professional advice to make sure they secure a product that can help them achieve their financial goals in a sustainable fashion over the long term.”
