The Bank of England has raised the base rate by 0.75 percentage points to 3%, the biggest rate increase for 30 years. Some had expected rates to increase by a full percentage point, but action taken by the new Chancellor Jeremy Hunt to reverse tax cuts announced by his predecessor Kwasi Kwarteng may have helped to avert the need for such a substantial increase. Rates are rising to try to curb rampant inflation. The Consumer Prices Index measure of inflation rose by 10.1% in the year to September, up from 9.9% in August, pushed higher by steep energy and food costs. Here’s what the latest rate increase means for your mortgage.
Variable rate mortgages
If you’re on a tracker mortgage, then the three-quarter point increase will be passed on in full, most likely at the beginning of December. Our mortgage interest rate calculator can help you work out how much extra you might have to pay based on your mortgage size and term. If you’re currently on your lender’s standard variable rate (SVR), it’s up to your lender to decide how much, if any, of the base rate increase they will pass on. Some lenders will raise rates by the full three-quarters of a percent, whilst others may choose to make smaller increases, or not to increase their variable rate at all. Check our SVR Watch to see if your lender has reacted to the rise yet. Remember that if you are currently on your lender’s SVR, there may be better deals available, even if your lender decides not to raise rates. You can review our best buys to see if you can find a better mortgage.
Fixed rate mortgages
If you’re on a fixed rate mortgage deal, you won’t see any change in your monthly payments. However, even though there won’t be any immediate effect, it’s important to remember that rates are likely to be much higher when your current deal finishes, so you could face much steeper monthly costs when you come to remortgage. If you’re worried that there could be further increases in the base rate, and you’re approaching the end of your current deal, you might want to start looking for your next deal sooner rather than later. Most lenders will allow you to secure your next rate up to six months before your current mortgage ends, so it’s worth exploring the options that might be available to you.
