The Bank of England increased interest rates by 0.25% to 4.25% this morning at it continues to tackle rising inflation.
It’s the eleventh consecutive rise in the base rate since December 2021 and is likely to place further pressure on household finances – particularly those of homeowners on tracker or variable mortgages or who are due to remortgage soon.
Today’s increase of 0.25% is a little less harsh than the 0.5% rises which we have become used to in recent months.
What’s more the Bank of England’s (BoE) Monetary Policy Committee, the nine-member group which votes on whether to hike the base rate, voted seven to two in favour of a 0.25% rise – the remaining two favoured no increase.
Could this indicate a halt to the relentless rate rises in the coming months?
Alice Haine, personal finance analyst at Bestinvest, the DIY investing and coaching service, thought it signalled some trepidation about pushing ahead with a rate rise amid the uncertainty.
“Whether this is the end of the rate hiking cycle is unclear,” she added: “but thankfully, the outlook from here is not entirely bleak.
“The UK narrowly evaded a recession last year and is expected to do the same in 2023. In addition, both the BoE and the Office for Budget Responsibility expect inflation to slide as a result of easing wage growth and falling energy prices.
“For now, higher interest rates will undoubtedly heap more pressure on household budgets, particularly for homeowners whose finances are already hurting thanks to costlier mortgage repayments along with the many other money challenges – from falling real incomes to significantly higher food costs and looming tax rises.”
What the 0.25% rise in interest rates means for your mortgage
Today’s 0.25% rise to interest rates will impact your mortgages in different ways depending on the type of deal you are on and when you signed up to it.
Those who are on a tracker mortgage, which follows the base rate, will see an instant increase to their mortgage rate and repayments will go up accordingly.
If you are on your lender’s variable or revert rate – often known as the Standard Variable Rate (SVR) – this may be increased in line with the BoE base rate.
SVRs have been increasing over the last year with the average rate now at 7.12% according to Moneyfactscompare.co.uk. This compares to 5% for the average five-year fixed rate mortgage.
Rachel Springall, finance expert at Moneyfactscompare, said: “The incentive to fix is clear from the continued rise to the average Standard Variable Rate (SVR), which is now above 7%, a level not breached since 2008.
“A rate rise of 0.25% on the current average SVR of 7.12% would add approximately £772 onto total repayments over two years.”
Those who are on a fixed rate mortgage and are not due to remortgage soon will not experience any changes following today’s decision.
However, those on a fixed rate mortgage which is due to expire in the next few months, will notice the interest rate on the product they remortgage to will be higher than their current deal thanks to the eleven consecutive base rate rises over the last year.
The main piece of advice for anyone in this situation is to speak to a broker who can not only search for the best and most competitive deal to suit you, but can also help you understand your options.
Springall said: “Those borrowers who wish to refinance might be pleased to see that fixed rate mortgages have fallen since the tail end of 2022, and that it is currently cheaper on average to lock into a five-year fixed rate over a two-year fixed deal.”
She added: “Affordability may well be the key challenge for borrowers struggling with the cost-of-living crisis, as interest rates are higher than prospective buyers, or those looking to remortgage, were perhaps anticipating.
“Whether now is the right time to get a mortgage will entirely depend on someone’s individual circumstances, so seeking advice is vital. In the meantime, it would be wise for borrowers to keep a close eye on the mortgage market, housing supply and house prices, particularly for new buyers who are a critical part of keeping the market moving.”
Some mortgage rates are falling – how to find the best deals
Whilst the rising interest rates, coupled with high inflation, may feel depressing, there is some good news.
There is, for example, lots of competition from lenders at the moment and data out this week revealed fixed rates are still coming down despite interest rates going up.
Paula Higgins, CEO of HomeOwners Alliance, agreed with Springall that keeping an eye on the mortgage market was essential for anyone who needed to take out a mortgage soon.
“It’s a case of watch this space,” she said. “Lenders are eyeballing each other to see who will act first in offering the best new deal.
“As they test the waters, we’ve seen new cheap rates on offer only to have them quickly pulled again by the lenders, so homeowners on the lookout for the best deal need to act fast.”
She offered five pieces of advice for homeowners or buyers to follow in the coming months:
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Put prices into perspective
Mortgage rates may be more expensive than we’ve been used to in recent years but they are significantly lower than the sky high rates we saw following the Autumn 2022 mini-budget. So take stock and see if you can save.
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Move fast
We’re continuing to see the best rates pulled from the market so move fast to avoid the risk of missing out.
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Scour the market for the best deals
If you’ve applied, been given a decision in principle or a mortgage offer from a major UK bank or building society in recent months, it’s worth checking to see if you can find a better rate today.
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Undecided? Consider a stop gap
If you’re holding off because you want to fix your mortgage but want to wait and see what happens to rates first, you may consider taking out a penalty-free tracker as a holding position.
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Don’t settle for an SVR
If you’re on your lender’s standard variable rate, check your deal now to see if you can save by remortgaging as SVR rates have soared
