What does the BoE interest rate hike mean for your mortgage?

With the recent news that the Bank of England (BoE) has raised its base rate to its highest level in more than a decade, those with financial products such as mortgages are likely to have a few questions, especially if they haven’t been fixed.

Base rate changes aren’t uncommon. The Bank of England’s Monetary Policy Committee (MPC) deliberates eight times a year on whether the UK’s interest or base rate will go up or down. The latest interest hike however represents a major jump.

Here we take a closer look at what the recent base rate changes mean for you and the financial products that are important to your household.

Why is the base rate important?

The base rate sets the level of interest that the Bank of England enforces on UK lenders, such as banks and building societies.

As a result, when the base rate rises or falls, the interest rates these lenders charge on the vast majority of their products also fluctuate. If the base rate remains low, borrowing is made cheaper, with many products sporting equally attractive interest rates.

What is the BoE base rate now?

The current base rate set by the Bank of England is 1%, however, a base rate review is due in mid-June 2022.

Although remaining consistently low throughout the pandemic, the official base rate has witnessed dramatic upsurges in recent months, rising from 0.1 to 0.75% since December 2021 before hitting its 10-year-high at the last review.

Why has the base rate risen so steeply?

The main reason why the BoE increases its base rate is to control inflation. We’ll let inews.co.uk explain more:

“The MPC normally increases rates to help manage inflation; if the base rate is higher in theory it is more expensive to borrow and this can, in turn, help slow rampant rises in wages and the costs associated with running a business… some experts are warning that even though inflation is now at 7 per cent, the highest rate in decades, raising rates might push the economy into recession.”

How will the increase affect my mortgage?

For those who haven’t fixed and are instead using other mortgage types, like standard variable rate (SVR), discount variable rate, and tracker products, it is likely that your monthly repayments will be affected. How much payments will increase will depend on your mortgage type and specific product.

The base rate increase will impact some mortgage products more than others. Your tracker or SVR mortgage repayments for example will see significant changes as the lender increases payments to meet the new base rate. Discount mortgages offer some protection, yet with the base rate increase, any benefits from your discount deal will be reducFixed-raterate mortgage holders may not be facing hiked interest rates but when it comes to taking out a new mortgage deal once your current product ends, ‘rate shock’ may leave you significantly out of pocket. Sharp interest rate rises will make replacing your fixed rate deal significantly more expensive.

If your fixed rate deal is coming to an end or you’re looking to change your SVR, discount or tracker product, getting mortgage advice is recommended. Contact us today to discuss your options.

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