The Bank of England today raised the base rate from 0.5% to 0.75% – only the second rise in over a decade. Here’s what it means for your finances – including the very latest on how individual banks’ mortgage and savings rates are changing.
The base rate is the Bank of England’s official borrowing rate – ie, what it charges other banks and lenders when they borrow money – and it influences what borrowers pay and savers earn. The increase announced today follows a rise last November from 0.25% to 0.5%.
The Bank’s Monetary Policy Committee (MPC) voted 9-0 to raise the rate, and said that future rises “are likely to be at a gradual pace and to a limited extent”.
Here are the key need-to-knows for your finances:
• Many mortgage rates will rise. If you’re on a standard variable rate mortgage, your rate is very likely to go up, and if you’re on a ‘tracker’ mortgage – which as the name suggests tracks the base rate – it definitely will. So if you’re a mortgage holder, urgently check if you can save £1,000s by remortgaging before the best deals disappear. If you’re on a fix, your rate won’t change for now, but when it ends and you remortgage rates may have risen.
‘Bad news for mortgage holders
This is bad news for mortgage holders, especially those on a variable rate which will now rise in price. The cost of the cheapest new deals for switchers or homebuyers will also likely jump.
That means its vital everyone on a variable deal or whose fix is close to ending checks if they can save £1,000s by remortgaging, as the longer you wait the higher the cost of new deals may get.
I’m a mortgage holder – what do I need to know?
If you’re on a fixed-term mortgage you won’t see any immediate change – though if your deal ends soon, the one you move to may cost more.
If you’re on a standard variable rate (SVR) or ‘discount’ mortgage, your mortgage is likely to rise by 0.25%, as most loosely follow the base rate. Such a jump could cost £180+/yr more per £100,000 of mortgage. However SVRs are set by individual lenders so you’ll need to check what yours is doing and when any changes will come into effect. About a quarter of mortgages – roughly 1.8 million – are on an SVR.
If you’re on a tracker mortgage your rate will definitely rise by the same amount as the base rate – 0.25%. Exactly when this happens will depend on your lender though – when the base rate last rose in November, some tracker rates went up immediately. Roughly 1.3 million mortgages are trackers.
The key points for mortgage holders are:
• If you’re on your lender’s standard variable rate, you’re likely massively overpaying. The average SVR is 3.61%, yet the top two-year fixed mortgage right now is just 1.42% – the difference in cost is almost £2,000 per year on a typical £150,000 repayment mortgage with 25 years remaining. Even with switching fees you’d likely make a massive saving.
• If you need to remortgage, this could be a unique window of opportunity. If you’re looking to get a better deal for your existing mortgage, it’s worth looking ASAP – as rates may be about to rise. The rates of the best new fixed deals have already started creeping up in the last few months – likely because lenders set them based on City swap rates (long-term predictions of interest rate trends), which have been pointing upwards.
Here’s what to do now if you’re a mortgage holder:
1 Dig out the details of your current mortgage. Find the rate, if it’s fixed or variable, when the intro deal ends, what the term is, if there are early exit penalties, and crucially work out your current loan to value – the proportion of your property’s value you’re borrowing.
2 Take two minutes to benchmark the best deal. Speak to an independent mortgage broker.
3 See your likely saving. Once you know prospective new deals, use our Mortgage calculator which has lots of tools to show your saving.
4 Check if you’re eligible. What matters is if your credit score is good, if you can afford repayments and if you meet the lender’s criteria.