The Bank of England’s decision to raise the base rate from 4% to 4. 25% on March 23rd 2023 is a significant event that could have considerable implications for UK homeowners. This will be the eleventh increase to the Bank of England base rate is just over a year (since December 2021).
Through increasing the cost of borrowing money, this move will increase monthly mortgage payments for most mortgages, unless they’re fixed.
What is the bank of England base rate and how does it affect me?
The Bank of England’s Base Rate is the interest rate set by the Bank of England, which is the central bank of the UK. It is the rate of interest used by financial institutions to determine the cost of borrowing. The Bank of England Base Rate is used in various forms, such as mortgage and loan rates, as it largely determines how much consumers pay in interest for financial products. The Bank regularly reviews and adjusts the Bank of England Base Rate in order to keep inflation in check and lessen economic risks.
So how does this affect me?
Although the Bank of England’s decision may be short-term, it can have a lasting effect on UK homeowners and the property market. For those who are on a fixed rate mortgage that is coming to the end, it may be the time to look for a new deal now. You can usually lock a new mortgage offer in three to six months ahead of your current deals expiry date. If you’re outside the last 6 months of your current deal, you will either have to wait until you’re within the last 6 months to look for a new deal or pay a charge to leave your current mortgage deal early.
Fortunately, the Bank of England offers various options and schemes to help offset some of the burden. Homeowners facing financial difficulty can seek out debt advice services and alternative flexible mortgages that can reduce monthly payments.
A breakdown of how mortgage will be affected:
Fixed Rate Mortgages
- There is no change to your interest rate.
- Since you’re on a fixed rate mortgage, your interest rate and monthly mortgage payments are fixed, and as such will remain the same.
Nearing the end of your mortgage deal?
- Currently on a fixed rate mortgage your payments will remain the same. If however your deal ends, you will be automatically put on your lender’s Standard Variable Mortgage Rate and is subject to price increased and decreases, in line with the bank of England base rate.
Tracker Mortgages
- These mortgages are designed so that when the bank of England Base Rate goes up or down, your payments will go up or down in line with any change made to the Bank of England Base Rate.
- If you’re on a tracker mortgages, this means that your mortgage interest payments will be increasing by 0.25% with the increase to the Bank of England Base Rate.
The Bank of England’s decision to raise the base rate from 4% to 4. 25% will have an impact on homeowners across the UK. It is important to weigh up all the options before making any decisions. Seek expert advice and assess all the options carefully, before taking the plunge and committing to a mortgage in a rising rate environment.