On 3rd November, the Bank of England upped the base rate from 2.25% to 3% in a continued attempt to bring inflation to heel.
The 0.75 percentage point rise is the biggest base rate hike since October 1989 and is the eighth consecutive base rate hike since December 2021.
The rising base rate has had a significant impact on mortgage rates. Here, we’ll explain why the Bank of England is raising interest rates and what it means for mortgage borrowers.
Why is the Bank of England raising interest rates?
Right now, the Bank of England's main concern is inflation. Last month, annual inflation was at 10.1%- a long way off the Bank of England's long term inflation target of 2%. Meanwhile, the Retail Price Index (RPI), the measure of the cost of living, came in at 12.6%, the highest level recorded since March 1981.
What has caused inflation?
The inflation we’re currently seeing in the UK has largely been driven by a number of external factors, such as the disruption of Covid lockdowns and the recovery, supply chain issues, and a spike in energy, food and oil prices which have been exacerbated by the conflict in Ukraine.
High inflation is a problem because prices are rising at a faster level than incomes, driving up the cost of living.
What does the base rate increase mean for your mortgage?
There’s no doubt that base rate rises are inflicting pain on many mortgage borrowers, who are seeing the cost of variable deals and new fixed rate deals rise rapidly. It means that monthly payments could rise by hundreds of pounds per month for some.
Will my mortgage be affected straight away?
This depends on the type of mortgage you currently have.
If you currently have a fixed rate mortgage, yesterday’s base rate change won’t affect your mortgage repayments. When you’re nearing the end of your fixed rate period, the best thing to do is contact an independent mortgage broker to help you find a new deal at the best possible rate.
If you currently have a variable rate mortgage, your variable rate mortgage payments are likely to change with yesterday’s Bank of England announcement. If you are concerned about how the base rate rise will affect your variable rate mortgage, contact your mortgage provider to discuss what the changes may be.
How a mortgage broker can help
Although yesterday’s announcement from the Bank of England was the rise we were all anticipating, we understand that it will still come as a shock to many homeowners. For the foreseeable future, the days of ultra-cheap mortgage finance are over, and never has independent mortgage advice been more important. If you are concerned about rising mortgage rates and require professional, independent advice to find your next mortgage, contact our friendly and helpful team today.
