In December 2021, the Bank of England increased its base rate to 0.25% from 0.10%, for the first time in more than three years. In February 2022 the base rate was increased again from 0.25% to 0.50% as the cost of living was on course to hit a 30-year high.
The increase comes as prices are rising at the fastest rate for more than a decade, which prompted calls for interest rates to increase in order to help dampen price spikes.
The base rate is used by the central bank to try and control the UK economy, by charging other banks and lenders when they borrow money. It also influences what borrowers pay and savers earn. If interest rates rise, it can make borrowing more expensive – especially for homeowners with mortgages.
I have a mortgage – what does this mean for me?
According to UK Finance, around 74% of all current mortgages are fixed.
If you are on a fixed rate mortgage, nothing will change and you do not need to do anything as your interest rate and monthly payments will stay the same until the end of your fixed rate period.
If you are near the end of your fixed rate period, (usually after 2 or 5 years after you took out the mortgage), and choose to do nothing, then when the fixed rate period comes to an end, you will normally be transferred to the lenders standard variable rate, which will usually mean higher monthly mortgage payments, due to the higher interest rate. You can work out your new interest rate by adding together
- The new base rate of 0.50% and
- The lenders standard variable rate listed in your mortgage offer
*You can find out all about your interest rate and monthly fees in section 4 of your mortgage offer.
What should I do?
If you are on a fixed rate mortgage which is coming to an end in the next 3-6 months, speak to your mortgage broker and see if you can remortgage on to a better deal, as you are able to lock in deals now for the next few months.
If you are on a standard variable rate or ‘discount‘ mortgage, consider fixing now, in case rates go up any further
The Bank of England project that many of the things causing higher inflation will not last long and that the inflation rate will begin to fall back in the second half of this year and during next year. If you are concerned about how these changes will affect you and your mortgage, please contact your mortgage broker who will be able to advise you.
