Bank of England Base Rate up again to 0.75% – what does it mean for my mortgage?
Here’s what you need to know about today’s Bank of England rate increase announcement…
What’s happened?
The Bank of England has increased the Base Rate (also known as the official bank rate) by 0.25% from 0.50% to 0.75%. The official bank rate is the interest rate that the Bank of England charges Banks for secured overnight lending. It is the British Government’s key interest rate for enacting monetary policy. This latest increase sees the Base Rate return to the same level as it was prior to the start of the Coronavirus pandemic. Rates were slashed in March 2020 to bolster the economy.
Why has this happened now?
Restoring the Base Rate to a more ‘normal’ level was always the plan, but the Bank feels it has had to act now to combat inflation, which is currently at 5.5% to January 2022, the highest rate for 30 years. The Bank’s target for inflation is just 2% and most expect the current rate of inflation to continue to rise due to the added pressure of the conflict in Ukraine, potentially into double figures.
I have a mortgage already, does this mean my payments will go up?
If you have a tracker mortgage then your payments will probably go up from next month – your lender will write to you if this is the case.
If you have a discounted rate mortgage then whether your payments go down will depend on whether the lender increases their standard variable rate. Whether you have a tracker or discounted mortgage, your lender will write to you with confirmation of any changes.
If you have a fixed rate mortgage your payments will not change until you reach the end of the fixed rate period. Check your annual statement or original mortgage offer if you’re unsure when this is. If it’s soon it may be worth seeking advice as to your options.
I’m in the process of getting a new mortgage, should I change my plans?
If you have applied for a tracker product then the rate you pay when the mortgage starts will now be 0.25% higher. It might be worth reconsidering your options and taking advice.
If you’ve applied for a fixed rate then the Bank of England Rate hike is likely to have no immediate impact. The money lenders use for Fixed rate mortgages is usually bought in advance and the markets price in expected future changes. We’ve seen the cost of new fixed rate mortgages increase over the last couple of months as this increase became more and more likely.
At Mortgage Medics, we’ll be reviewing available products for all our clients who we’re currently arranging a mortgage for and letting them know if we think they might want to take action.
Should I switch to a fixed?
There’s no simple answer to this, but if you’re currently on a tracker product and you like the idea of longer term security, a fixed rate might be appropriate. However if you need flexibility, perhaps because you want to move in the near future, then staying as you are might be your best bet.
I want to talk to someone about my options
Our team of independent, whole of market advisers are ready to help. Just get in touch with your adviser, or if you don’t have a named contact as yet then feel free to get in touch. We’ll do our best to help keep you living costs in check.
Sam Murphy – 17th March 2022
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