Did the 0.25% increase in the base rate have an impact?


As the Bank of England’s base rate climbs again, can we expect mortgage rates, savings rates, and loan and credit card rates to follow suit?

Last week’s announcement that the bank of englandThe Monetary Policy Committee (MPC) had voted to raise interest rates by 0.25 percentage point to 1.25% came as no shock to most. Some experts had even suspected that the increase could be larger, at 1.5%.

In the short term, the decision to raise the base rate caused a stir across many sectors, with stock markets crashing as investors lost confidence, stocks tumbled and bond prices weakened.

For the millions of homeowners with mortgages, the question of how much mortgage rates could be affected is a hot topic. Of course, it all depends on the type and size of your mortgage, as well as your lender, many of whom remain extremely competitive in a busy market.

Although there is obviously market turbulence and rising interest rates will have an effect on mortgages, rates remain historically extremely low. Before the financial crisis of 2008, the base rate had fluctuated between 3.5% and 7.5% for ten years.

Focus on mortgage rates

New figures from Moneyfacts have revealed the current state of mortgage rates and available products. He notes that rates have risen slowly as the base rate has been raised, but with optimism that competitive fixed rate deals will be in place at this time.

Rachel Springall, financial expert at Moneyfacts.co.uksaid: “Consumers are facing a cost of living crisis and the resulting rate hikes are fueling the mortgage market.

“Borrowers who commit to a fixed agreement can protect themselves from future rate hikes, but those who put down a deposit may not be able to afford a mortgage as interest rates and the cost of living keep climbing.”

In June 2022, the average standard variable rate mortgage (SVR) was 4.91%, compared to 4.78% in May and 4.40% in December 2021. This compares to June 2017 five years ago, when the average rate was 4.59%.

Two-year fixed mortgage rates rose more sharply, rising from 3.03% in May to 3.25% this month. In June 2017, the average rate was 2.30% for this type of mortgage loan. Similarly, three- and five-year fixed rates increased.

The longer-term option, chosen by fewer borrowers, for a 10-year fixed rate, now sees the average at 3.36%, which is not as big as other parts of the market. In June 2017, a 10-year fix was at 3.12%.

Lock yourself in longer

Springall added: “As the rate spread between the average two-year and five-year fixed rate has narrowed, a longer fix may be a wise choice. Borrowers could even lock themselves into a fixed mortgage for a decade if they are willing to commit to such a long fixed term.

“It is wise to seek advice to assess the abundance of offers available to ensure that borrowers find the most suitable choice based on the overall true cost.”

She added that those sitting on their lender’s SVR could benefit by switching to a fixed rate now, with payments being significantly lower.

Brian Murphy, head of loans at Mortgage advice officeechoed that sentiment, noting that all eyes would be on the property market after this latest announcement, but we are unlikely to see a subdued appetite for UK property.

“Signs of a slight cooling in the market may be appearing, but the reality remains that demand continues to outstrip supply, which means prices continue to be high,” he said.

“The Bank of England expects inflation in the UK to continue to rise at around 10% this year, which could well mean that interest rates will follow their upward trajectory this year.

“Existing borrowers, especially those with tracker or variable rate mortgages, should consider moving to a fixed rate as soon as possible to protect them from a high interest rate and inflationary environment.”


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