Bank of England base rate jumps to 0.75%
What does the rise mean for you?
The Bank of England has increased base rates to 0.75% from 0.5% after the Monetary Policy Committee voted in favour of a rise. The base rate is used by the central bank to charge other banks and lenders when they borrow money and influences what borrowers pay and savers earn.
This is the central bank’s first back to back increase since June 2004, after it lifted rates from 0.1% to 0.25% in December 2021 then from 0.25% to 0.5% in February 2022. The vote for the rise to 0.75% was in favour of eight member compared to the one against it.
The rise comes as UK inflation looks set to increase over 7% by Spring, according to a Bank of England forecast. Inflation stood at 5.5% in the year to January 2022, according to the most recent figures from the Office for National Statistics.
I have a mortgage – what happens now?
According to UK Finance, 74% of all current mortgages are fixed which means for the majority of mortgage holders, nothing will change. The key points are:
Fixes are fixed however lock in again now if yours is coming to an end – As the name suggest, rates won’t change during the fixed period. Any new fix you remortgage to in the future may end up being more expensive. So, you might want to check if you can fix now if your current deal is coming to an end soon.
Lenders MAY raise standard variable rate (SVR) or ‘discount mortgages’ – You’ll usually be on an SVR after your fix or tracker ends. The SVR will change at the whim of the lender. A discount mortgage follows the SVR at a set rate (e.g if the SVR is 4% and the rate is SVR minus one percentage point, it’s 3%).
If you’re on a tracker mortgage then rates will increase – A tracker mortgage will track the base rate, so mortgage costs will go up if the base increase. It might be worth checking now to see if you can switch to a better deal.
So what should you do?
If you’re on a fixed rate that is coming to an end in the next three to six months, you could start speaking to a mortgage broker like ourselves to see if you can remortgage onto a better deal. You will be able to lock in deals available now even though your current mortgage product isn’t due to end for a couple of months.
If you’re on a standard variable rate or a discount mortgage, your mortgage is likely to rise by 0.75 percentage points. However, if you’re on a standard variable rate, you’re able to remortgage to a new deal. Whilst for a discount mortgage, you may be able to remortgage without a penalty but you will need to check your paperwork. If not, you’ll either have to wait for your initial deal term to run out or pay the charge to leave early.
If you’re on a tracker mortgage, your rate will definitely rise by the same amount as the base rate so it might be worth seeing if you can switch to a better deal. However check if there are penalties to leave your current deal now as many trackers do have them. If not, you’re free to switch to another mortgage.
I’m a saver – what happens now?
The rate increase could affect all types of savings accounts, including traditional savings accounts, savings accounts that are linked to your current account and ISAs. For savers, rate rises are generally good news, although most saving rates at the minute are still relatively poor and rates didn’t go up much after the last rise.
What should you do?
If you’re on a fixed rate account, the rate is locked in for a set amount of time and won’t change. Nonetheless, it might be worth shopping around for a better deal if there is one.
If you have a variable rate account, your rate could go up but it’s not guaranteed. Every bank decides on its own increase and the timing of when this happens. Whatever rate you’re currently on, it might be worth waiting a few days to see best buy rates rise before switching.
If you’re looking for more information about remortgaging, you can read our ‘Guide to Remortgaging’. Alternatively, you can get in touch with us to discuss your remortgage needs, call us on 01270 443510 or complete our enquiry form and we’ll be in touch with you as soon as possible.
*All information in the article above was sourced from Money Saving Expert. This article is for general information only and does not constitute advice.