How The Bank Of England Base Rate Affects Mortgages
The Bank of England base rate can have a big impact on your mortgage repayments, depending on the type of mortgage you have. Find out why here.
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The Bank of England might feel like one of those official organisations that’s far removed from everyday life, but its base rate can actually have a significant direct impact on your mortgage, as well as your savings and any other type of borrowing or investment.
In this article we’ll look at how changes in the base rate can impact your mortgage repayments, how to protect yourself from interest rate changes, and how a broker can help you keep your repayments affordable.
How does the Bank of England base rate affect mortgage applications?
The Bank of England base rate is the rate of interest that the Bank of England charges to other banks and lenders when they borrow money. When the Bank of England’s interest rate is higher, it costs more for lenders to offer products like mortgages and so this is reflected in mortgage interest rates.
Some types of mortgages are more directly impacted than others – many tracker mortgages for example mirror any changes in the base rate, normally tracking just above it. An increase of 1% on the base rate would mean an increase of 1% on your mortgage rate. Variable rate mortgages are likely to increase too if the base rate goes up, although they are not tied directly so can go up by more or less than the base rate change. Increases may not affect you if you’re still in a discount period with guaranteed rates but remember too that a variable mortgage rate can change at any time, not just when there’s a base rate change.
If you have a fixed rate mortgage then you’ll be immune to any changes in the base rate, good or bad. However, you may be in for a shock at the end of your fixed rate term if rates have moved significantly, and if you’re a new mortgage applicant, the range of fixed-rate deals you can apply for will be impacted by the central bank’s current base rate.
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What happens if there’s a base rate change during your application?
This is a tricky question to answer. Technically a lender could change the rate they’re offering you at any point up until completion, but most will define a cut off point at which their offer rate gets locked in. For some lenders this is at the point of the agreement in principle, for others it’s when you submit your full application.
If you’re concerned that your interest rate could change during the mortgage application process and that this could impact whether or not you can afford the mortgage, then speak to your broker about your concerns. They’ll be able to check the small print and clarify exactly how secure any rates you’re offered are and make sure that they handpick a lender who they feel confident isn’t going to make any last minute changes.
What’s the current base rate?
On 2nd November 2023 the Bank of England’s Monetary Policy Committee (MPC) met and decided to keep the base rate unchanged for the second time in a row at 5.25%. Whilst the base rate is still at its highest level since the 2008 financial crisis, indications are the recent cycle of rises may well have peaked.
This is welcome news, not just for anyone with a mortgage, as the base rate can also have a knock-on effect on other finance products such as overdrafts, credit cards and vehicle hire-purchase loans.
Is it expected to go up in the future?
Possibly, although there are signs that inflation is now coming under control. The Bank of England is responsible for using the base rate to try to keep inflation under 2% but while it remains relatively high, that may prove difficult.
With this in mind, the MPC may still need to introduce further minor rates rises before inflation is fully under control. The MPC meets every six weeks and their next session is scheduled for 14th December.
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Is now a good time to remortgage onto a fixed term deal?
If you’re coming to the end of a fixed term or discount period, or are on a variable rate with no exit fees, you may be thinking about how to protect yourself from the projected increases in interest rates. One option is remortgaging to a fixed term deal, giving you predictable monthly mortgage repayments at least while we navigate the rises in the cost of living and spiralling energy bills.
Start looking to remortgage at around 6-7 months before the end of your current term and ideally your broker will be able to help you get a mortgage quickly and get rates locked in before they increase further. It may even be worth remortgaging if you will incur charges, as these could be outweighed by potential future savings – your broker will be able to help you with some cost comparisons.
How a broker can help if you’re concerned about the base rate
If you’re at all worried about the impact of the base rate increases on an upcoming mortgage application or remortgage then the best thing you can do is to speak to a broker. They will be fully aware of how the current economic conditions are affecting the mortgage market and will have existing relationships with lenders and access to more options than you could find on your own. A broker will be able to look at your personal circumstances, take into account future changes, and advise on the best mortgage for you right now.
If you know that you won’t be able to afford your mortgage should rates rise any further then your broker will be able to find you the best fixed rate mortgage deals currently available, so that you’re at least protected for the near future. They’ll also be able to advise on which fixed rate term might suit you best – normally two years, three or five.
Get in touch now and we’ll find you the broker who’s right for you.
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Get matched with the right mortgage broker and guard against rate changes
Increases in the Bank of England base rate can have a significant impact on mortgages and with rates set to remain high for some time yet, it’s more important than ever to get the expert support of the right mortgage broker. Go it alone and you risk paying over the odds or leaving yourself open to price hikes.
Give us a call now on 0808 189 0463 or make a quick online enquiry and we’ll quickly assess your needs and match you with the broker who we think has the best mix of experience and expertise for you. All of the advisors we work with have been vetted by us and our matching service is completely free of charge.
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Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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