What Do The Bank Of England Base Rate Rises Mean for Mortgage Holders?

Aug 30, 2022

We’ve now had a succession of base rate increases by the Bank of England, with the latest being by 0.5% to 1.75%. We’ve seen a total of five increases since December 2021 and as inflation is predicted to hit 13% later this year, it’s extremely likely we will see more increases yet.

As homeowners, we’ve got used to mortgage rates hovering around the 1% mark for a number of years however you will be extremely unlikely to find interest rates that low now. We really are in a different landscape now when it comes to mortgages!

According to Rightmove, the average rate for a 75% loan to value mortgage is 2.9%, regardless of whether it’s on a two- or five-year term. For a variable rate mortgages the outlook is bleaker with, at the start of July, rates averaging at 5.06%; the highest level since February 2009.

If you consider that the average outstanding mortgage for customers on a standard variable rate is about £76,000, every 0.25% increase adds around £16 per month to mortgage repayments. This means that every increase is taking money out the pockets of already cash strapped families.

There are two recommendations for homeowners or those looking to move and that is if they are on a standard variable rate or within six months of the end of a fixed rate, to re-fix as soon as possible.

For those on a variable rate, this will not only give certainty and protect from future increases but is likely to immediately save money on repayments. For those coming towards the end of a fixed rate, this will mean they are able to benefit from today’s rates whilst they can.

For those looking to move or purchase their first property it is advisable to get your mortgage agreement in principle (AIP) in place as soon as possible. An AIP tends to be valid for six months and this will give more certainty about the rate you can expect.

It’s certainly going to be a bumpy ride over the coming 12-24 months, however whether we will hit the highs north of 10% as was seen in the 1970s remains to be seen. It’s unlikely, but as we have learned over the past few years, nothing is a certainty!

If you have any questions about your mortgage, our team are always on hand to help. Either contact us online or by calling the office on 01322 553282.

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