What does a Bank of England rate rise mean for me and my mortgage?
Posted on 22 August 2018 by
Earlier this month the Bank of England raised its interest rate for the second time in a decade. The Monetary Policy Committee unanimously voted in favour of raising the rate from 0.5% to 0.75%, the highest level since March 2009. This base rate signifies the Bank of England’s official borrowing rate to banks and lenders, which in turn influences what borrowers pay. We break down what this could mean for you and your mortgage below.
If you are on a tracker mortgage…
As tracker mortgages are a form of variable rate mortgage that typically follows the Bank of England Base Rate, you can naturally expect these to feel a swift effect of the interest rate rise. Many lenders, including HSBC, Tesco and First Direct increased their tracker rates the day after the Base Rate increase was announced, and many other lenders including Halifax, Barclays, Lloyds and Santander have confirmed their new tracker rates will be rolled out in September. If you are currently on a tracker mortgage and have not already seen an impact, you can expect to see your monthly mortgage repayments to increase within the upcoming months.
If you are on a variable rate mortgage…
Variable rate mortgages differ to tracker mortgages as the mortgage lender themselves set the interest rate, rather than the Bank of England. However, it can be expected that the rise will be passed on by many lenders to their borrowers on variable rates within the following months. Numerous big lenders such as Barclays, Lloyds, Halifax and Co-op increased their Standard Variable Rates (SVRs) immediately following the Base Rate announcement, with many other lenders including HSBC, Santander, Natwest and RBS all confirming that they will be reviewing their SVR. If you are on a variable rate mortgage we recommend contacting your lender to find out if you are likely to see an increase in your mortgage repayments in the near future.
If you are on a fixed rate mortgage…
These days around 95% of all new mortgages in the UK are on fixed rates, so the majority of people are unlikely to see any immediate effects on their monthly mortgage repayments. If you are on a fixed rate mortgage you are likely to be unaffected by the Bank of England interest rate increase unless you are coming to the end of your term. Many lenders have begun to raise their fixed rates following the interest rate increase, so it is likely you could end up paying more for your monthly repayments if you are due to renew your deal soon.
What can you do now?
If you are on a fixed rate mortgage and are concerned about switching to a more expensive deal when your mortgage term ends, you may be able to secure your next rate now whilst rates are still relatively low. As long as your end date is not too far in the future, an independent mortgage broker may be able to submit an application for you in the upcoming months before lenders are compelled to increase the rates of their products in reaction to the market.
Conversely, if you are on a tracker or variable deal and are unhappy that your rate has increased, you should speak to an independent mortgage broker as soon as possible to talk through and assess the options available to you. For more information about the available options enquire now.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.