What the interest rate rise means for your mortgage.
Will my mortgage go up?
Only if you have a variable rate mortgage – typically a tracker that follows the base rate, or a loan on a lender’s standard variable rate. A tracker mortgage will directly follow the base rate – the small print of your mortgage will tell you how quickly the rise will be passed on, but next month your payments are likely to increase and the extra cost will fully reflect the base rate rise. On a tracker currently costing 2.1%, the interest rate will rise to 2.25%.
On a standard variable rate, it is less straightforward – these can change at the lender’s discretion. Most commentators say there is no reason for banks and building societies not to pass on the full increase, so you should expect a rise. If your lender wanted to, it could increase rates by more. As an example, HSBC’s standard variable rate is 3.59%; if it passes on the full rise borrowers paying it will move to a rate of 3.74%. On a £150,000 mortgage arranged over 20 years that will mean monthly repayments go up by £11.66.
Most borrowers are, however, on fixed-rate mortgages. Interest rates have been so low in recent years that locking in has been attractive, and since 2019, 96% of new mortgages for owner-occupiers have been taken on fixed rates. In total, 74% of outstanding mortgages are fixed, and these borrowers will not see any immediate impact from the change.
Several million homeowners are now unmortgaged, thanks to years of low rates and enforced savings during lockdowns. For them, the rate rise will have no impact on their housing costs.
If you have a private pension and want to buy an annuity to provide an income in retirement you could benefit from the increase. Annuity providers invest in government bonds and these are expensive when rates are low as other investors want to hold them. When rates rise those other investors are inclined to sell the bonds, which makes them cheaper. As a result, annuity providers are able to offer better returns.
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