What Does the Interest Rate Rise Mean for Mortgages?

The Bank of England increased its base rate to 0.75% on 17 March. The move was aimed at tackling rising inflation – but what does it mean if you have a a mortgage or are planning to buy?

If you have a tracker mortgage that follows the base rate, or a standard variable rate, you are likely to see your monthly payments go up. With a tracker mortgage, your loan’s small print will tell you how soon you’ll see the rise reflected in your payments. For example, on a tracker currently costing 2.25%, the interest rate would rise to 2.5%, adding £18 a month to a £150,000 mortgage arranged over 20 years.

When it comes to standard variable rates, changes are at the company’s discretion and not all lenders passed on previous increases in full.

If, like most borrowers, you have a fixed-rate mortgage, your monthly repayments won’t change. With rates very low, since 2019, 96% of new residential mortgages have been taken on fixed rates.

Says Andrew Wishart, of Capital Economics, “We expect a sharp rise in mortgage rates over the next 12 months. Based on our forecast that bank rate will rise to 1.25% by year-end and to 2.00% in 2023, the average rate on new mortgages is set to double from a low of 1.5% in November 2021 to almost 3.0% in 2023.”

People on a standard variable rate are advised to look at switching their deal. According to Rachel Springall of Moneyfacts. “Borrowers who switch to a competitive fixed rate from a SVR could reduce their mortgage repayments significantly,”

Read more about this story in The Guardian.