The Recent Base Rate Rise – What Does This Mean?

Written on 3 November 2022 by Nicholas Mendes

The Recent Base Rate Rise – What Does This Mean?

As expected, the MPC has announcement a base rate rise of 0.75%. Bringing the bank of England base rate to 3%, this has been the single biggest increase since 1989.

Since the last MPC meeting in September much has happened. Such as Trussonomics mini budget, sterling falling to records lows, increase in government borrowing cost, followed by an unprecedented government U-Turn, followed by a new PM and chancellor. If we continued down the same path with no changes, we could have seen an increase percentage higher than the one this afternoon.

Inflation in the UK is at its highest rate for 40 years, 11.6% in October. With inflation above the target limit of 2% each year, the bank of England has been forced to raise interest rates further.

For homeowners on a standard variable rate (SVR), they could see their payments rise by £1,476 a year. This will mean that a household with a £250,000 mortgage over 25 years on the average SVR rate of 5.4% will see their monthly payments increase by £123.

Despite the base rate reaching 3% we aren’t expecting sudden changes in mortgage rates or withdrawal of mortgage products as we experienced following the mini budget.

Following recent weeks of uncertainty, markets have stabilised, and gilts rates have fallen which feed into swaps – this in short is what lenders base fixed rates on. The market has priced in a base rate increase of 0.75% and therefore we have started to see rates fall in the run up to the MPC meeting on 3rd November. Nationwide, HSBC & Halifax have all reduced their fixed rate products in light of this.

Borrowers can feel more confident in securing rates as the market consolidates, rates stabilise, and deals continue to be available. The importance of discussing your individual circumstances with a broker should not be underestimated, particularly when considering options concerning early repayment charges (ERCs), extending terms to reduce monthly payments, debt consolidation or interest-only facilities to meet the challenges of our economic environment.

Category:Nicholas Mendes