At the latest meeting of its Monetary Policy Committee held today (23rd March 2023), the Bank Of England (BofE) has yet again reached the decision, by a majority of 7-2, to raise the base rate by 0.25% from 4% to 4.25%.
The eleventh rise since December 2021 puts the BofE base rate at a 14 year high as it continues to battle with an ongoing cost of living crisis, fuelled by ever-increasing prices.
This comes off the back of yesterday’s news of a surprising increase in the consumer price index – the main measure of the rate of inflation – from 10.1% to 10.4% in the year up to February when most city analysts had predicted a decrease which would bring it below 10%.
As a result, today’s increase was not entirely unpredicted and also comes off the back of market uneasiness in light of the recent collapse of Silicon Valley Bank and the crisis (and subsequent rescue) of Credit Suisse.
Despite this news the BofE has maintained its predictions of inflationary pressures beginning to ease in the second half of the year.
How will this base rate rise affect your mortgage?
For anyone on a fixed-rate mortgage then nothing will change as your repayments will remain the same until the current deal period ends. At that point you’ll need to consider all your remortgage options very carefully, particularly if your fixed rate ends whilst rates are still high (which is predicted to be the case for most of 2023 as things stand).
If you’re currently on a tracker mortgage or some other type of variable rate deal then the base rate rise will almost certainly result in an equivalent increase in your mortgage repayments, as is the nature of these types of interest rate offers.
You can use our mortgage difference calculator below to input both your current and expected interest rate in light of this increase to see how much your repayments will change:
Mortgage Difference Calculator
Our mortgage difference calculator will show you how much your monthly repayments could change with a different interest rate to what you have currently. Enter your outstanding mortgage amount, remaining term, both current and new interest rate. Our calculator will then do the rest.
We estimate your current monthly repayments are
At this rate, your payments could change by…
Speak to an experienced broker to help find you the best mortgage solution for your current circumstances.
How will this base rate rise affect your savings?
In theory, today’s news should provoke a more positive response from savers as higher interest rates should also mean higher returns on their nest eggs. However, with inflation at such high levels the reality is that whatever the returns on your cash, it’s value in real terms will still be reducing.
It’s also been noted that many banks and building societies have been much slower at passing the rises in the base rates onto their savings rates as they have with their mortgage rates.
One option available to anyone who has both a home loan and a large amount of cash savings is to consider making overpayments on their mortgage by using either a lump sum and/or increasing monthly repayments.
The key benefit of this action would be to reduce the overall interest you’ll pay throughout the term of the mortgage, thus making savings in the long run.
You can use our mortgage overpayment calculator here to see how this could work out for you, based on your specific mortgage situation:
Mortgage Overpayments Calculator
This calculator can show you how much you could save and what your new mortgage payments will look like if you were to make overpayments as a lump sum, monthly amount or both.
Your current monthly repayment is:
What your mortgage repayments will look like based on your overpayments:
Potential mortgage term reduction:
Amount of interest you could save:
Now that you have a rough idea of how overpayments will affect your mortgage deal, make an enquiry to speak to a broker for bespoke advice about whether this is the right option for you.
How will this base rate rise affect your pension?
If you have a personal pension and are due to retire in the next few months then today’s base rate rise could be good news. When you retire you’ll have the option to purchase an annuity and annuity rates tend to rise when interest rates are also higher.
On the other hand if you’re on a state pension then these are not linked to base rate increases so your payments will remain the same. However, the ‘triple lock’ guarantee from the government means your pension payments should continue to increase in line with inflation.
What does the future hold for base rates?
The next scheduled meeting of the monetary policy committee is set to take place on 11th May. Most market analysts predict the base rate will peak at 4.5% so a further increase could be on the cards at this point.
This will all depend on the market data received leading up to this date. A decrease in the BofE’s base rate is not expected until the latter part of 2023 with some experts believing it could be at or around 3% by the end of the year.
If you currently have a mortgage and are concerned about today’s news, get in touch and we can arrange for you to speak with a mortgage specialist we work with straight away.