The Bank of England’s Monetary Policy Committee voted to raise the base rate by 0.25 percentage points to 0.75% in March, the first time it has increased rates at three successive meetings since 2004. The base rate was last at 0.75% in August 2018, where it remained until March 2020, when it was reduced to 0.25% in a bid to shore up the economy during the pandemic. Another increase this month was widely expected, as four members of the Committee had voted for a larger 0.5 percentage point increase at the Bank’s February meeting. Interest rates are going up to help curb inflation, the rate at which living costs are rising. Record high energy bills and rising food costs amid the Ukraine war have pushed inflation to 5.5%, with the Bank of England forecasting that it will reach 7.25% in April when the latest energy price cap comes into effect. The Bank’s current inflation target is 2%.
What higher rates mean for your mortgage
Homeowners with tracker mortgages will see their mortgage rates rise in line with Thursday’s increase. If you have any other type of variable rate mortgage, it will be up to your lender to decide whether they pass on the increase in full. Homeowners with fixed rate mortgages will be protected from interest rate increases now but should be prepared for higher costs when they come to remortgage. Analysis by L&C shows that the average of the top 10 lenders’ two-year year fixed remortgage rates has climbed by 1% since October and 5-year rates by 0.92%. Mortgage payments would be almost £70 a month more in March and £800 more a year than at the low. The best mortgage rates tend to disappear quickly, but many homeowners may not realise they can apply for a new dealup to six months before theircurrent deal ends. David Hollingworth, spokesman for L&C Mortgages, said: “Fixed rates are still at historically attractive levels so borrowers should review their current deal to make sure that they are on the best deal and protecting their position, especially against a backdrop of rocketing outgoings and further potential increases in base rate. Rates are moving quickly though and deals rapidly come and go, often only lasting a matter of days before being replaced with higher rates. Borrowers can lock in at a current rate up to 6 months ahead giving the chance to review well ahead and ensure a smooth switch over when their current deal ends. That could help them get ahead of any further rate rises.”
