Expert Insight: Bank of England Base Rate Increasing – What to do about my mortgage?
With the latest news about the Bank of England Base Rate increasing to 1%, we sat down with one of our Mortgage and Protection Consultants, Emma Lowe, to ask her what that exactly means for those who have a mortgage or looking to purchase a house.
What’s exactly happening at the moment with the Bank of England Base Rate?
A couple of weeks ago (4th May 2022), the Bank of England Base Rate raised from 0.75% to 1% in an effort to tackle spiralling inflation due to the current events of the Russian war in Ukraine.
Previous to this, the Bank of England Base Rate increased from 0.1% to 0.25% in December 2021, 0.25% to 0.5% in February 2022 and then 0.5% to 0.75% in March.
The committee is due to meet again on the 16th of June 2022 to vote on whether any further changes need to be made.
What does that exactly mean in relation to Mortgages?
The base rate determines the interest rate we pay to commercial banks that hold money with us, it influences the rates those banks charge people to borrow money.
Therefore, if the base rates raises then the interest rates on mortgage borrowing will also increase.
In regard to mortgages, the key point is that if you’re on a fixed rate, you’re fixed with your current rate. However, if your current fix rate is coming to an end, it might be worth looking for a new deal and securing it in place in the event that rates were to keep rising.
If you’re not on a fixed rate mortgage, depending on the type of product that you have, you may see an increase in your monthly mortgage repayments.
What are your thoughts about remortgaging at this current time?
I believe at this current time that remortgaging is an opportunity to save money on your monthly expenses and a chance to secure a cheaper mortgage product before any increases.
Even if your fixed rate is now due to end yet, we have some lenders who will allow you to secure a product in place up to 6 months before your current product is due to end.
You may be thinking about the early repayment charges however, it’s best to double check what they are as in some cases, it might actually be cheaper to switch to a new product.
With the cost of living rising rapidly rising, remortgaging onto a fixed rate could lead to saving on your monthly expenses further.
So, what exactly does that mean for those who aren’t on a fixed rate?
If you’re on a Standard Variable Rate or Discount Mortgages, your Standard Variable Rate will change at the whim of the lender and a discount mortgage follows the Standard Variable Rate at a set rate. For example, your rate may be the lender’s standard rate minus 1%.
If you’re on a tracker mortgage then your rates will increase as it’s tracking the base rate. You may have noticed that every time that the Base Rate has increased, your monthly repayments would have also increased.
Predication for future Base Rate changes?
Looking at the current situation, I believe that the Bank of England Base Rate will continue to increase and looking at the current trend, it could even reach 2.75% – 3% by the end of the year – the news is stating that the prediction of inflation rates is to reach 10% by the end of the year. On this very day (18th May 2022), the inflation rate has reached 9%.
What does this mean for those who are saving up for a house?
The rate increase could affect all types of savings, including traditional savings accounts, saving 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 are the benefits of using a mortgage broker?
Using a mortgage broker like Amplo Mortgage is that we have access to a large panel of lenders, we have experience and a strong understanding of lenders’ criteria. Additionally, we have access to exclusive rates from some lenders as they will only work with brokers.
We will do all the hard work for you, submit your application in the correct formats for each lender as well as we’re able to work with specialist lenders for those who may have a more unusual case.