Home > News > BOE interest rate rise what it means for mortgages?

BOE interest rate rise what it means for mortgages?

The Bank of England has again raised interest rates – this time by 0.5 percentage points – taking the base rate to 3.5%. This is the ninth rise since last December. So what does this mean for your mortgages?

How will it affect mortgage payments?

Today’s move is yet more bad news for the approximately 2.2 million people on a variable rate mortgage, who are already having to contend with a raft of rising costs. Many now face paying hundreds of pounds extra a year.

About half of those 2.2 million are on a base rate tracker or discounted-rate deal. The other half are paying their lender’s standard variable rate (SVR).

A tracker directly follows the base rate, so your payments will almost certainly soon reflect the full rise. On a tracker, now at 4.25%, the interest rate would rise to 4.75%, adding £40 a month to a £150,000 repayment mortgage with 20 years remaining.

This person’s monthly payment would rise from £929 to £969. As recently as June this year, this same individual would have been paying £776 a month – so their home loan bill has now jumped by 25% in just six months (assuming they have had their deal for a while).

Of course, the numbers will be bigger for those with bigger mortgages. Up that mortgage to £500,000, and the payment will rise by £135 (from £3,095 to £3,230).

SVRs change at the lender’s discretion, but most will go up, not necessarily by the total 0.5 points. Some lenders may take some time to announce their plans.

However, about 6.3m UK mortgages (three-quarters of the total) are fixed-rate home loans. These borrowers are insulated until their deals expire – but for many, that will be in the next few weeks or months.

What about new mortgages?

The last few months have proved a really difficult – and expensive – time for anyone looking for a new fixed-rate mortgage, whether it’s to buy their first property or to replace a deal coming to an end.

The price of new fixes had already been marching upward but really shot up after Kwasi Kwarteng’s disastrous mini-budget on 23 September unleashed chaos in the financial markets. The average new two-year fixed-rate home loan surged to 6.65% by 20 October.

However, during the last few weeks, lenders have gradually reduced the cost of their new fixed rates. Money market “swap rates” largely determine the pricing of new fixed deals.

As a result, the average new two-year fixed rate has gradually been falling and stood at 5.83% on Thursday, according to data provider Moneyfacts. The average new five-year fix was priced at 5.63% on Thursday.

However, there are best-buy deals available that are a fair bit cheaper than that: at the time of writing, new two-year fixes could be picked up from 4.85% from the likes of Lloyds Bank and Coventry building society.

Different lenders are taking different approaches: for example, Santander this week reduced all residential and most buy-to-let affordability “stress rates”, thereby allowing people to borrow more than before, said Chris Sykes, technical director at broker Private Finance.

HICH LTD has continually raised the quality standards in the UK property survey market. Our multi-award-winning property survey service has made us the leading reference in the property survey market.

We offer property survey services of the highest quality. Using state-of-the-art equipment, we provide top-notch property surveys at affordable prices. Our prices are based on the number of rooms rather than the value of the properties, so you will always get the best value for money with our services.

Please look at our Trustpilot page and see why customers have chosen us as their favourite property survey provider!

At HICH LTD, we work to serve our clients and make the world a better place for everyone. We actively collaborate with NGOs to promote environmental, social and charitable causes. If you want to know more about our efforts or how you can help, contact us at hichinfo@aol.co.uk.

HICH LTD extends a warm invitation to contractors and service providers throughout the UK to join our network; by joining the Contractors and Service Providers Network, you will enjoy benefits such as a significant increase in customer flow, advertising on our high-traffic website, and direct contact with thousands of customers in your zip area. Find more information here or by following the QR code in the following video.