How The Base Rate Rise Will Impact Mortgages 

In June 2022, the Bank of England’s (BOE) base rate was raised to 1.25% and this has had a knock-on effect on how much it costs people to borrow money. The main reason for this rise in interest rates is to try and lower the increasing inflation rates, and this is one of the main focuses for all central banks at the moment. 

The BOE Monetary Policy Committee (MPC) voted again at the beginning of August to increase the base rate to 1.75% and this is the biggest single increase in over two decades. Unfortunately, further rises are likely to come too as inflation rates are predicted to remain at very elevated levels throughout most of 2023. 

Although the reason behind the base rate rise makes sense, it is still understandably concerning for anyone who wants to purchase a new property or remortgage their property in the near future. The new interest rates might influence mortgage offers moving forward and below we have looked into the impact the MPC’s decision could have on new mortgages. 

Mortgage lenders increase their interest rates

When the BOE base rate rises, it becomes more expensive for banks and mortgage lenders to borrow money, and therefore, they charge higher interest rates on loans for borrowers. The BOE base rate has a direct impact on mortgage providers’ interest rates and when you’re borrowing money to buy a home, you can expect interest rates to move alongside the BOE base rate. So, the recent rise will probably result in your monthly mortgage repayments being more expensive and you would therefore pay back much more over time. 

Fixed-rate mortgages

For those who are still tied into a fixed-rate mortgage, whether this is for 2, 3 or 5 years, the base rate rise won’t have an impact on your mortgage payments as the interest rate is fixed for this set period. However, if you’re trying to find a new fixed-rate mortgage, the interest rates are likely to be much higher than what you’re currently paying. You should get some independent advice from a mortgage expert to help you find the best fixed-rate mortgage deal in your individual circumstances. 

Tracker mortgages

Interest rates for tracker mortgages are set in line with the BOE’s base rate and if you’re on a tracker mortgage, the recent rise will have a direct impact on the amount you pay for your mortgage every month. Mortgage providers set their tracker mortgage interest rates at a certain percentage above the base rate and depending on what this percentage is, your repayments may get considerably more expensive. If you’re on a tracker mortgage, you should consider moving to a different mortgage product, especially as the base rate is expected to rise again in the coming months. 

Standard variable rate mortgages

When your current mortgage deal comes to an end, you will be put on a standard variable rate mortgage and this type of mortgage tends to have the highest interest rates. Mortgage lenders don’t necessarily adjust their standard variable rate mortgage interest rates alongside the BOE’s base rate and they can change them at any time, irrespective of the base rate. This makes this type of mortgage very unpredictable and it’s not usually recommended that borrowers stay on a standard variable rate mortgage for a long time. 

Borrowers find it harder to get mortgages 

Unfortunately, the base rate rise could make it harder for borrowers to get approved for the mortgage they need to purchase a property. Depending on the affordability criteria a mortgage lender uses, now that interest rates are higher, you might not be able to borrow as much as you could a few months ago. 

Mortgage providers will often do a stress test to ensure you can continue paying back your mortgage even if interest rates rise again too. So, depending on things like your income and monthly expenditure, you may not pass this stress test. 

Getting some advice from a whole of market mortgage advisor 

During this worrying time, it’s more beneficial than ever before to speak to an independent mortgage adviser when you’re taking out a new mortgage or remortgaging your current property. They can provide you with the tailored mortgage advice you need and help you to understand how the base rate rise may impact your future mortgage deals. 

At Mortgage Required, we are whole of market mortgage advisors and we will be happy to help you find the best mortgage product available. Our dedicated team of mortgage experts are the best people to help you secure a mortgage that meets your needs and budget, and we can assure you that you will be in the best hands when you turn to us for assistance. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be no fee for Mortgage Advice. There may be a fee for arranging a mortgage. The precise amount will depend upon your circumstances, but we estimate it to be £399.

Mortgage Required Ltd, Finance House, 5 Bath Road, Maidenhead, SL6 4AQ is authorised and regulated by the Financial Conduct Authority reference 573718 at www.fca.org.uk.

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