The Bank of England’s Monetary Policy Committee voted by 7-2 to raise the base rate by quarter of a percentage point in May, taking it to 4.5% - its highest level since the 2008 financial crisis. It is the 12th consecutive increase in the base rate since December 2021, as the Bank continues to battle double-digit inflation. Higher interest rates raise borrowing costs, which dampens consumer spending and in turn leads to lower prices. Recent weeks have seen some lenders increase their mortgage rates ahead of the increase, some by as much as 0.45%, as markets anticipate that there may be more rate rises to come. Some commentators are predicting that we could see a further increase in the base rate this summer, which would bring it to 4.75%..
What the rate rise means for your mortgage
If you’re currently locked into a fixed rate mortgage, you won’t see any change in your monthly payments following the latest base rate increase. However, if you’re approaching the end of your existing deal, you should be prepared for the fact you’re likely to face higher mortgage costs when you come to remortgage. You may also be wondering whether it is a good idea to lock into another fixed rate, or whether you might be better off opting for a variable deal, such as a tracker mortgage, which might come without any Early Repayment Charges. Trackers may be increasing at the moment, but would follow rates down if they drop in the future. Alternatively, opting for a penalty free tracker would give you the option to leave and move onto a fixed rate if rates reduce in future. The right decision for you will depend on your individual circumstances and how important budgeting certainty is to you. If you’re unsure, it’s a good idea to seek professional advice on the options available to you and the costs involved. If you are already on a tracker rate, then the latest increase means you will see your mortgage rate go up by a quarter of a percentage rate. If you have any other type of variable rate mortgage, it will be up to your lender to decide how much of the latest increase they pass on. If you’re worried about rising rates and aren’t sure whether your current mortgage deal is right for you, a broker can talk your through which deals you’re likely to be eligible for. They can also advise whether or not you’re likely to be better off staying with your existing mortgage deal, or remortgaging to a new deal.
